Understanding the Types of Life Insurance Cover and If You Need It
With life insurance, you pay a premium, and the insurance company or insurance provider covers your dependents in the event of your death.
Ultimately, life insurance cover can provide you and your loved ones financial security in the event of an unexpected emergency, death, injury or illness.
A recent study revealed:
Only 30-37% of Australians aged 18-69 have life insurance cover. And only 11-18% hold total and permanent disability cover, income protection insurance, or critical illness and trauma cover.
Read on to learn more about life insurance and why it may be beneficial to you and your family:
The Coverage of Life Insurance
If you had no income, how much cover do you need to pay for your everyday living expenses and potential medical costs?
This is an important question to ask yourself when you purchase life insurance and when assessing which life insurance options would be well-suited to you.
If you have a budget in place, it can make it easier to understand how much money you would need to cover your lifestyle if in the unexpected event you couldn’t work.
It also allows you to understand how much insurance cover may be suited for your family if you were no longer around to provide financial support.
Different life insurance policies cover different events:
- Life Cover: Allows you to receive a lump sum with death cover if you have a terminal illness. If you pass away, the total sum will be paid to your family. This can cover funeral costs, living expenses and even mortgage repayments.
- Total and Permanent Disability (TPD) insurance: A lump sum amount is received to cover rehabilitation and living expenses.
- Trauma Insurance: You’re covered in the event you acquire a serious illness or terminal illness, trauma insurance can cover the costs you need to recover and keep up with day-to-day living costs.
- Income Protection Insurance: This replaces a portion of your earnings if you are unable to work due to illness or injury.
What Are The Benefits of Purchasing a Type of Life Insurance Policy?
- Gain Peace Of Mind:
When you buy life insurance often there’s a feeling of relief knowing that you’ll be able to pay your bills, and other expenses in the event you became critically ill or injured leaving you unable to work. A lump sum payment to your family in the event of your death can also relieve their financial stress during an emotional time.
- Cover Your Medical Care Costs:
Your life insurance policy cover amount can pay for your rehabilitation and private healthcare to help you focus on getting better and avoiding a stressful financial situation.
- The insurance industry is reliable:
Reports from APRA reveal that 93% of insurance claims are approved by providers. Meaning claims that don’t qualify under the insured policy are rejected. This is why it is also particularly important to check out the below checklist, to make sure you don’t underinsure yourself or purchase a policy that you may not be able to claim on in the future.
Life Insurance Coverage: A Checklist
A relevant product disclosure statement is required when purchasing life insurance.
Look for the following:
- Exclusions and coverage clauses
- Information requirements
- Premiums paid and their variation over time
- Waiting and benefit periods before making a claim
- Claims process
- How to appeal a claim refusal
How Much Life Insurance Do You Need?
This is completely unique to everyone’s individual needs. Often, it’s important to think about whether or not you have people who financially depend on you. If that is the case, you may want to use a life insurance calculator to work out how much life cover you might need and what expenses your cover will pay for in the event you die.
If you don’t have a partner or children who depend on you financially, you may still want to consider the following insurance covers for yourself:
- income protection insurance
- trauma insurance
- total and permanent disability insurance
You can discuss your options with an experienced financial adviser, who can understand your financial circumstances and personal needs.
How Life Insurance covers works:
When you have a type of insurance cover, it involves the following:
- You buy a policy type and ensure it is well-suited to your personal circumstances
- You then pay premiums regularly to ensure you are covered – either monthly or annually
- Under the policy, you can nominate your loved ones as beneficiaries to ensure they will be provided cover when you die.
- If you ever need to make a claim, you can claim the benefit amount and receive financial support
It’s important to note that you can choose to pay for life cover with either:
- Stepped premiums: recalculates the premium you pay at each policy renewal as you grow older, generally the premium increases.
- Level premiums: at the start of your policy you generally pay higher premiums, but the increase is usually gradual over time.
The life insurance cost can vary depending on your personal circumstances.
Your life insurance application may need the following information:
- medical history
- family history
- your current lifestyle (e.g if you smoke, are involved in high-risk sports, things that may have an effect on your life expectancy)
Seek a Financial Adviser To Help You Decide What Life Insurance You Might Need
Deciding on an insurance policy could be intimidating. Note that you can always reach out to a trusted professional regarding the type of insurance plan that works best for you and your lifestyle.
Are you in need of ethical financial advice? Novo Wealth specialises in aiding people with financial planning and life insurance advice in Adelaide and Australia. You can count on us to provide ethical financial advice to professionals and business owners.