Life Insurance: Everything You Need To Know

Life insurance: when you hear the phrase, do you feel like you immediately want to go to sleep? Or plug your ears with your fingers because it means thinking about your own death?

It’s not a pleasant subject, but it is a necessary one. If there is one certainty in life, it’s that nobody gets out of it alive. We’re all going to die.

Imagine what your family’s life would be like if you or your partner died or became seriously ill and couldn’t work. Would you be able to survive financially?  It is a good idea to review your life insurance regularly, especially if something has changed in your life, for example, if you’ve taken out a home loan, are having kids or starting a business.

What Is Life Insurance?

There are different types of cover that fall under the broad heading of life insurance. Depending on your circumstances you may need one or more of these:

  • Life cover – also known as term life insurance or death cover, pays a set amount of money when the insured person dies. The money will go to the people you nominate as beneficiaries on your policy.
  • Total and permanent disability (TPD) cover – covers the costs of rehabilitation, debt repayments and the future cost of living if you are totally and permanently disabled. TPD cover is often bundled together with life cover.
  • Trauma cover – provides cover if you are diagnosed with a specified illness or injury. These policies include the major illnesses or injuries that will make a significant impact on a person’s life, such as cancer or a stroke. It is also referred to as ‘critical illness’ cover or ‘recovery’ insurance.
  • Income protection – replaces the income lost through your inability to work due to injury or sickness.

life insuranceHow Much Life Insurance Do You Need?

First think about what cash you will have if you or your spouse died or became disabled. What money do you have in superannuation, shares, savings and existing insurance policies? Think about how much paid leave you have and what type of support you can get from your family. You may also be entitled to government benefits or workers compensation if you get injured.

Then think about how much cash you would like. The difference between what you will have and what you would like is the amount of cover you should get.

Would you like your spouse and children to continue to have the same lifestyle that you enjoy now? You will need to think about things like whether you’d like your spouse to have to go back to work if you couldn’t and whether you’d like your kids to go to private school. Your insurance will need to cover these decisions.

How Do I Buy Life Insurance?

You can buy life insurance in three main ways:

  • Your super fund – Many working Australians have some life and disability insurance with their superannuation.
  • Insurance brokers and insurance companies
  • Financial advisers

Life Insurance Through Superannuation

Your employer’s default fund must offer a minimum level of life insurance, depending on your age. You may choose to increase, decrease, or cancel your default insurance cover.

You can get the details of the insurance policy by contacting your super fund. Don’t be afraid to ask as many questions as you need to. You may consider getting financial advice if you have broader questions about insurance or other financial products that are suitable for you. A basic life insurance policy may not be enough or it may not suit your individual circumstances.

Can I Afford Life Insurance?

life insuranceIt is not uncommon for people to look for ways to decrease the cost of their life insurance premiums over the term of their policy. A reduction in financial obligations, update of policy beneficiaries, change of employment or retirement can all be key reasons to consider reducing the sum insured in ones life cover policy.

Compare new Policies: If you would like to cancel your existing policy and find a new policy all together, it is important to take all of the necessary steps to ensure you are not leaving yourself underprotected and that you are receiving a competitive deal. A financial planner can assist you through this process by understanding what you need, explaining the different features and benefits available, and recommending suitable products.

 

Premium structure: There are several ways you can reduce the cost of your life insurance premiums. One way is to choose the premium structure that is best suited to your needs.

Stepped premiums start low and become more expensive as you get older, particularly after the age of 50, so they may be more suitable when you are young and starting out in life and wish to save money on your life insurance.

Level premiums are calculated on your age at the time of application and they remain the same for the entire life of the policy. While they do cost more than stepped premiums, they may be suitable for those who wish to save money on their premiums later in life when they may have less disposable income.

Hybrid premiums are in between stepped and level premiums. They cost more than stepped premiums but less than level premiums at the outset of a policy, and they increase until you reach a pre-determined age, at which time they will not increase further. Hybrid premiums might suit someone who is prepared to pay a little more to save money over the long term.

Increase waiting period: Another way to save money on your premiums is to increase the waiting period. A waiting period is the time you wait after making a claim before that claim will be honoured. The more you increase the waiting period, the cheaper your premium becomes.However, the thing to watch with this is that you don’t cause yourself or your loved ones financial hardship as a result. Unless you have access to other funds when you become ill or injured, you will not be able to pay your medical and hospital bills until your waiting period is over.

Shorter benefit period: Another way to save on your life insurance premiums would be to select a shorter period over which the benefit would be paid. This is relevant when your life insurance policy includes income protection or TPD cover.A shorter benefit period would mean a cheaper premium, because it translates into less money that the insurer would have to pay you. Again though, it is important to calculate whether the time length opted for would be enough to recover from an illness or injury and whether you would have sufficient funds coming in to allow you to live without hardship.

Cover only what you need: When comparing quotes, look for policies that allow you to mix and match your options. This way you can choose only the cover you think you will need and not pay for extras that you can probably do without. Everyone’s circumstances are different however, so deciding what level and extent of cover you require should be done with some professional help and advice. 

Remove unnecessary cove: Just as you can choose only the cover you think you will need, so you can choose to remove those options you are fairly certain you won’t need to reduce the cost of your overall premium.Weigh each option carefully however, as what may seem irrelevant to your situation now may become more important in the future. Again, professional advice would be wise when making such decisions.

life insuranceImprove your health: A key step in reducing the premiums payable for your life cover is to make adjustments to your lifestyle to improve your health. During the initial application process an underwriter will take into account your body mass index, signs of hypertension, whether you smoke, indicators of high alcohol consumption and other factors, all of which can impact on the premiums payable on your life cover. Policyholders that are able to show changes to their health since their last medical exam may be able to reduce the premiums payable on their life policy. 

How Can A Financial Planner Help With Life Insurance?

There are many ways in which a qualified and reputable financial planner can help you when it comes to your life insurance plan. This includes:

  • Offering valuable advice with regards to the life insurance products best suited to your needs based on the information that you provide
  • Providing access to valuable tools and resources to help you
  • Recommending products and services to suit your needs
  • Helping you to review existing plans and policies to ensure that you are still adequately covered
  • Saving you time when you are trying to sort out life insurance coverage
  • Helping you to avoid potentially costly mistakes
  • Being able to answer questions and provide clarification with regards to life insurance related matters

The role of a financial adviser when it comes to life insurance is to act in your best interests, which means making you aware of all of your options and assessing your situation to provide recommendations on what will work best for you. What you can do is provide your adviser with key information relating to you, your finances and your circumstances so that he or she can make informed recommendations and offer valuable advice accordingly.

For friendly and experienced advice, please contact us. We can help with all aspects of life insurance cover, investment advice and superannuation.