Life insurance – Forbes Advisor Australia
One of the main reasons people buy any type of insurance is for peace of mind. And life insurance is no different.
Although it is designed to help the family of a deceased person, it is often more useful when the loved one is alive. For many, the thought of their family and loved ones struggling to make ends meet is too much to bear, and life insurance can help ease those fears.
So what is it exactly? A life insurance policy provides a lump sum payment to you if you become terminally ill, or to your family when you die. Some of the major life insurance providers in Australia include MLC, AHM, Allianz and IMAA.
It’s the peace of mind of knowing that bills will be covered and the people you care about won’t be financially disadvantaged, giving them one less thing to worry about during a stressful and trying time.
Most of us don’t like to think about death or terminal illness, but it’s important to make sure you have enough cover when you buy life insurance so you have the right policy in place. for you and your family.
Before you consider buying life insurance, the first step is to understand how it works. Life insurance covers death from any cause, although suicide is usually excluded for a specified period of the policy. A payment to the family will normally take place if the death is linked to an event such as:
- natural causes
- medical complications
- acts of violence.
There are different types of life insurance adapted to your personal situation. The main ones include:
- Life cover. Insurance that pays a lump sum to your named party when you die. The cash payout to your family can be up to $1 million, depending on your age. The general entry age requirements are 18 to 79 years old.
- Traumatic coverage. Pays if you are diagnosed with a specific disease, such as a stroke, so you can focus on your recovery. This is sometimes called “critical illness insurance” or “recovery insurance” and pays a lump sum if you suffer a serious illness or serious injury. This includes cancer, heart disease, serious head injury or stroke. Trauma insurance does not cover mental health issues. General entry age requirements 18 to 64 years old.
- Total and Permanent Disability Insurance (TPD). Provides payment to clear debts and cover medical expenses if you become permanently disabled. The lump sum also contributes to rehabilitation and living expenses. General entry age requirements 18 to 64 years old.
- Income protection insurance: Generally, payment for this insurance will be monthly, typically 85% of your bills. This type of insurance is taken out to cover expenses if you have to be absent from work due to illness or accident.
- Funeral cover: As its name suggests, funeral insurance is designed to help your loved ones pay for your funeral expenses in the event of your death.
There are a number of reasons people seek out life insurance.
Do you have any family members or dependents that you take care of financially? Whatever your dependents: children, spouse or even your dependent parents, life insurance is the assurance that they will be provided financially, if something were to happen to you.
Are you an individual entrepreneur or the main breadwinner? You may want to protect your business to ensure its survival. You can choose a company-owned life insurance policy with disability insurance that names the company as the beneficiary so it can continue if something happens to you.
Or, if you work in a high-risk area, you might want to consider disability insurance that continues to pay you wages, should you find yourself unable to work due to injury.
Did you know that you may already be covered by your retirement fund?
Before going any further, it’s worth checking if your super fund already includes a life insurance option. To find out what insurance you have in your super fund and who the insurer is, you can call your super fund or access your super account online. Check your super fund’s annual statement and product disclosure statement (PDS).
It is also important that you ask:
- How does super insurance cover you? Most retirement policies offer some life insurance products. These include life insurance (which pays a lump sum if you die) and total and permanent disability (TPD) insurance, which pays a lump sum if you become totally and permanently disabled due to a illness or injury.
- How much are you covered under super? It will really depend on how much you pay in premiums for the coverage. Generally, you can find this information by reading your PDS statements. If you can’t find the information, call your pension fund. The government MoneySmart website contains useful information to guide you.
- Have you continued to update your designated beneficiary? To ensure that your benefactors receive payment, it is essential that you name the names of your benefactors in your policy. You will need to complete a binding appointment form from your super provider, stating how you would like all or part of your superannuation death benefits to be distributed – this could be to your children or your spouse. The application is generally valid for a maximum of three years and expires if not renewed. It is therefore important to check with your superfund, otherwise you could risk other people claiming the payment if you do not keep it up to date. If you do not have a binding appointment in place, your trustee will revert to a preferred appointment, which is non-binding. It will be used as a guide only by the trustee of the Australian Retirement Trust when deciding who to pay on your death.
In addition to reading reviews and receiving word-of-mouth recommendations, the following should be considered when purchasing life insurance:
How much are the monthly premiums?
Although most insist that life insurance isn’t as expensive as most people think, ultimately it’s you who should be happy with the price. Make sure you know what the monthly premiums will be and whether or not they will increase in the future. It is natural for them to increase with age, but make sure you are financially comfortable with these hikes. People opt for either “tiered premiums” which are recalculated on an annual basis (usually at a higher level) or “level premiums”, which are higher initially, but then price increases occur more slowly because they are not indexed on age.
What are the Waiting Times?
Like most insurance, waiting periods apply to some life insurance products, including income protection. Check your policy to determine the waiting period for different types of life insurance and look for a policy with a short waiting period, as it can range from a few weeks to several months.
What are the exclusions?
All policies have exclusions of some kind, and life insurance generally does not cover suicide or risky activities or behaviors. Read the fine print carefully, as you may be surprised what falls under these exclusion definitions.
How does the complaints process work?
Life insurance claims can be long and stressful. This is where independent online reviews can come in very handy, so be sure to look for companies that prioritize good customer service and quick complaints handling.
Do you get a discount if you have more than one insurance with the company? Does it offer coverage over two million dollars? (Most of the best at this range). Is the policy underwritten by an insurer you can trust? All of these additional features can be considered when choosing the best life insurance policy for you.
Before buying a life insurance plan, it’s important to shop around to make sure you get the coverage that’s right for your situation.
A broker could be a good starting point. Their job is to represent consumers in their search for the best coverage with several different insurance companies in exchange for a commission.
Where maybe you can go direct? If you have the time and the patience, you can shop around and go directly to a life insurance provider. Now that you have a better understanding of the questions to ask and the tools at your disposal, you’re in a good position to find a font that’s right for you.