Life insurance is designed to provide you and your family with financial security if you were to pass away, become terminally ill, or in some cases if you become unable to work. Depending on your policy, life insurance can pay a benefit in events such as your death, disability or upon being diagnosed with a specified illness.
Life insurance includes multiple types of cover, that can be bought separately or bundled into one policy. You may require one or more of these types of cover:
Term Life Insurance
Term life insurance provides a lump sum payment to you or your beneficiaries (your family or other loved ones you specify in your policy) when you die or are diagnosed with a terminal illness that will end in death within a specified period – usually 12 or 24 months.
Trauma Insurance Cover
Trauma insurance can provide a lump sum of money to help you meet medical expenses and other financial needs when you have suffered a medical trauma. While the type of medical traumas covered will differ between policies, some of the more commonly-defined events are cancer, heart attack and stroke.
Total and Permanent Disability (TPD) Cover
TPD cover pays you a lump sum if you become totally and permanently disabled to the extent that you are unable to work again. This could help cover the costs of rehabilitation, debt repayments and the future cost of living.
Income Protection Insurance
Income protection insurance pays you a benefit if you are unable to work for a certain period of time because of illness or injury. It is designed to help maintain your lifestyle by ensuring your cash flow needs and expenses can continue to be met during a period of absence from work. This is generally paid monthly but can be paid as a lump sum in certain circumstances.
Policies will cover you for a set percentage of your current regular income (commonly up to 75% of your gross salary) for up to a certain duration known as the benefit period. The policy should pay you the agreed amount until you are able to return to work, or for the agreed period of time. There will also be a waiting period to consider, the shorter the period the higher the premium.
How Much Life Insurance Do You Need?
The level of life insurance cover you will need depends on your individual circumstances, your life stage and the type of insurance you are considering.
As a general rule, you should aim to have enough coverage to pay all large debts and provide your family or other dependants with a lump sum that can be invested to earn an income to replace your lost earnings.
What to Check Before You Buy Life Insurance
Before you buy life insurance, by law an insurer must give you a Product Disclosure Statement (PDS). Check the PDS for:
- what’s covered and what’s excluded under the policy
- what information you’ll need to give an insurer
- information on premiums and how they change over time
- waiting periods before you make a claim
- how to make a claim
- how to complain about the claims process or decision
Also, check whether you already have life insurance through your super. Make sure you’re not paying for insurance twice.
Need Help With Your Life Insurance?
The cost of life insurance may vary depending on a number of factors including your age, gender and whether or not you smoke. Contact me today to learn how you can get the right life insurance coverage for your situation and your budget.