What is Life Insurance?
Life insurance provides a lump sum payment to your beneficiaries when you die or are diagnosed with a terminal illness that will result in death within 12 months. It’s designed to help loved ones to cope financially when someone passes away. In addition to offering policies with varying levels of term life cover (also known as death cover), many life insurers also offer income protection cover, trauma cover (for critical illnesses and injuries), and total and permanent disability cover (TPD).
What are the different types of life insurance cover?
There typically are four different types of cover on offer: (1) term cover, which is also called death cover; (2) trauma cover, which provides a lump sum payment if you suffer a critical illness or injury; (3) total and permanent disability (TPD) cover, which provides a lump sum payment if you become disabled and can no longer work; and (4) income protection, which provides a monthly payment of up to 75% of your regular income, up to a maximum amount, for a period of time you are unable to work. TPD and trauma cover are both often bundled with term cover, either by default or as an optional extra. Income protection cover is generally sold separately to life cover, but some providers offer discounts to customers who take out multiple policies.
How can I decide if I need life insurance in 2020?
You may want to seek professional financial advice to help you decide whether to purchase a policy. For example, many of us have life insurance through superannuation, so you may want to work out whether this is sufficient for your needs.
If you are considering buying a policy, ask yourself questions such as: If you died, would your family be able to maintain its current standard of living and achieve the future goals you had set? If you were permanently disabled, how would your family pay the bills? If you don’t have a family, who would look after you and would you be able to afford the care? How long could you continue to pay your bills without income? If you suffered a significant injury, could you afford home modifications? How would you pay for the cost of any long-term rehabilitation?
Based on your responses, you may benefit from having a level of cover in place. You can estimate how much cover you may need using Canstar’s Life Insurance Needs Calculator.
Can I change life insurance policies?
Yes, in Australia you can switch policies and even hold multiple policies. It may be a good idea to review your cover regularly, especially if your income or personal circumstances change.
For example, if you get married, have a baby, take out a home loan or start a business, you may decide you need more or different cover. You may decide to reduce your cover if your expenses and debt decrease. If your current policy no longer provides good value, you may consider comparing policies and viewing the most recent winners of Canstar’s direct life insurance and direct income protection Star Ratings and Awards.
Before switching, consider any important cover or benefits included with your existing policy that you might lose, as well as any waiting periods or exclusions that would apply to the new policy.
How much life insurance cover do I need?
How much cover you need, if any, depends on your personal situation. Canstar’s Life Insurance Needs Calculator provides an estimate of how much cover you and your family may require if you die, suffer a trauma, or become totally and permanently disabled (TPD) or unable to work. However, you may like to seek financial advice from a qualified advisor before making a decision. If you decide you do need cover, you can compare life insurance and income protection policies based on your requirements, and view Canstar’s most recent Direct Life Insurance Star Ratings and Awards and Direct Income Protection Star Ratings and Award.
What is advised life insurance?
Advised life insurance is cover that can only be obtained through a specialised financial adviser who may support you in finding and applying for a policy for your specific requirements. Advisers will usually ask questions about topics such as your budget and personal, living and family situation. They may also help you shop around among a range of providers. Bear in mind that some financial advisers receive a commission for selling certain products, or in some cases are employed by the insurer or work in a different part of the same overall company. One alternative to this is speaking to an independent financial adviser who is not allowed to receive commissions for recommending products to clients.
What are the pros and cons of direct life insurance?
Some of the potential pros of direct life insurance include the ability to choose cover that specifically meets your needs, having the option to pay in stepped (increase over time) or level (remain the same over time) premiums and cover generally continuing as long as you pay the premiums. This is unlike life insurance through super, which usually ends at age 70, according to Moneysmart. There are also possible cons of this type of cover, which include that premiums could be more expensive than what you might pay for cover through super; you may need to undergo a medical or health check to get the cover; and some pre-existing conditions may not be covered, depending on the policy.