Time to check if you have enough life insurance

Let’s face it, we all want to live better, happier, healthier lives for ourselves and our loved ones. But how would you and your family cope if you were no longer able to earn a living to help provide for them financially?

Now might be a good time to check out what, if any, level of life insurance cover you have. Doing so could give you a lot of peace of mind knowing that it’s sorted, and could even save you money.

How should I start thinking about life insurance?

Life insurance is all about protecting three aspects of your financial wellbeing. It’s about making sure you ask yourself three key questions.

1. Would I have an income if I became unable to earn a living after an illness or injury?
2. Would my loved ones have enough money to live on if I was not around to look after them?
3. Would I pass on debts, like a mortgage, to loved ones who might not be able to afford the repayments without me?

To help you answer those, you can start by asking yourself these three questions:

1. How much income would I need if I was ill or injured and couldn’t work?
2. How much would my loved ones need to live on if I wasn’t around to provide for them anymore?
3. How much do I owe?

The answers to these questions should help you work out how much of each type of life cover you might need to have. The types available are:

• Income protection cover – pays you an income if you become unable to work due to illness or injury.
• Death cover – pays out a lump sum if you die or become terminally ill.
• Total and permanent disability cover – pays you a lump sum if an illness or injury means you’re not going to be able to work ever again, either in your own job or in any job you’re qualified for, depending on the policy.
• Trauma (sometimes called critical illness) cover – pays you a lump sum if you are diagnosed with one of a specified list of severe medical conditions.

Okay, once you’ve worked out what you need, here’s what to do next.

What life insurance do I already have?

Check out what life insurance cover you’ve already got. You don’t want to be paying for more cover than you need, so you might need to adjust what you have, either up or down.

Here are two simple steps you can take.

Check with your super fund

If you are employed and over the age of 25, the chances are your super fund will already be automatically providing you with some life insurance cover. Your fund will be able to tell you what type and how much cover you have. Simply ask and they’ll tell you.

If you need to reduce the amount of cover you have in super, you can ask your fund to do so. By doing this, you’ll also reduce the amount of premiums that are taken out of your super fund, increasing the amount you’ll have to retire on when the time comes.

If you have multiple super funds, it may be worth checking with all of them and cancelling any policies you don’t need, as it’s possible you could be paying multiple sets of fees.

Check with your employer

Some employers pay for life insurance for their staff through a standalone insurance scheme. Again, just ask.

What if I don’t have enough cover?

If you know what types of cover, and how much, you need to get your affairs in order, it’s a good idea to shop around to make sure you get a good deal. Doing this using the internet is easy, and typing “compare life insurance” into a search engine will quickly bring up lots of links for you to explore.

Compare life insurance

Get some professional help

Most people don’t arrange life insurance very often, so especially if you’re not very confident to do this on your own, it’s a great idea to ask a professional financial adviser or planner to do this for you.

When an adviser gives you personal advice, they have a legal duty to act in your best interests, and they will help you find what’s best for your particular circumstances. The adviser will tell you what information you need to provide and will research, identify and recommend suitable policies for you.

The good news is that most advisers will be paid by the life insurance company they recommend. This means the cost of their advice is added to your premiums and spread over the lifetime of the policy, so you won’t normally need to find any cash upfront to pay the adviser.

Finding an adviser is easy – check out www.yourbestinterests.com.au, an initiative of the Association of Financial Advisers (AFA). You can also check out the Financial advisers register on financial regulator ASIC’s Moneysmart website, which also provides advice on choosing a financial adviser.

How can I be sure that my policy will pay out if I need to make a claim?

When you take out life insurance, one of the most important things you need to do is take reasonable care when you apply for cover. This means answering all the questions you’re asked carefully and honestly, to the best of your knowledge and belief. If you do this, there’s no reason why your valid claim won’t be paid in full, subject to any limitations or conditions in your policy.

Life insurers are in the business of paying out claims, and the amount they pay out is significant.

As an industry, life insurers pay out, on average, $125,000 to 242 Australians and their families every single day, based on data gathered by the Financial Services Council (FSC). That amounts to around $12 billion paid to Australians every year, precisely when they need it most.