Life insurance protects your most valuable asset – you. It provides a lump sum benefit to those that are financially dependent on you in the event of your death or terminal illness.
Term Insurance covers you for a set amount of time and is the simplest form of life insurance. It pays only if death occurs during the term of the policy, which is usually from one to 30 years. Most term policies have no other benefit provisions. There are two basic types of term life insurance policies: level term (the death benefit stays the same throughout the duration of the policy) and decreasing term (the death benefit drops, usually in one-year increments, over the course of the policy’s term). Most policies also offer the option to pay the benefit prior to death, in the event of diagnosis of a terminal illness.
How Much Do You Need?
Be realistic and ask yourself: How much money will your family need in order to live comfortably if you die?
If your family has no money coming in, how long could they continue to live in the style they are used to? If you have ongoing expenses, such as education expenses or a mortgage, how long could your family make those payments?
Take a moment when you’re paying the monthly bills, or when you’re doing your taxes, to get a general idea of how much you spend. Think about the mortgage payments, car payments and everyday bills including school expenses. By considering how much money your family will need to live, you can determine how much insurance you should buy.
Ideally, sit down with your financial adviser and work through your personal situation with them.
Why does the company assess my risk?
If you’re young, fit and healthy and work in a low risk occupation, you’re likely to be a lower risk than someone who’s overweight, smokes and works in a high risk occupation like a construction worker or miner. It’s common sense really – the lower the risk, the lower the premium. When you apply for insurance, companies often ask some basic questions that will help them assess your risks – it’s important to highlight that these questions are designed to help insurers provide you with access to cover, not to find a reason to not cover you. This process is called underwriting and in very few cases, insurers may ask for further details from you.
Will an insurance company always assess my risk?
No – not all policies are underwritten. If you have access to insurance through your super or through your employer, the insurance company may decide not to assess the risks for every individual in the policy. Instead they may spread the risk across everyone in the group. This is called a ‘Group Policy’.
How do I make payments?
You pay a monthly or annual premium. Your insurance company then pays out if there is a claim. This may be paid via your super balance in some circumstances.
How much premium do I pay?
This depends on the type of cover you want, where you buy it and what sort of risk the insurance company assesses you to be. But generally speaking premiums are affordable for most Australians.
Talk to us today about how we can discuss your personal situation and have your family looked after in the event that you become no longer able to.
This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, you should consider whether the information is appropriate in light of your particular objectives, financial situation and needs.