life-insurance-and-income-protection

25 Life Insurance Myths

Get the facts of life insurance and income protection

Everyone has an opinion about how you could be managing your life better. While it is important to listen to the advice and experience of others, it can be hard sometimes to separate the good advice from the bad. One instance where you need to take special care to find out the truth and reality for your situation is when considering life insurance.

On the surface, many people view life insurance as just another bill to squeezed into the budget. As a result, there are many myths about the need for life insurance and the amount of life insurance needed. That is why we have covered the five areas you be looking at as you compare life insurance, and explained all of the myths, so you have only the facts.

Myths about how much it actually costs

  • The premiums are deductible. In most cases life insurance premiums are not deductible. However, there are exceptions to this rules such as you are self employed and the cover is insuring the business’ operations.
  • You must have life insurance at any cost. Life insurance is important in almost all situations, but before you invest in life insurance, you assess your situation and your finances. For example, if you don’t have any debts or any dependents, you may be better off having an emergency savings fund and taking out a low level of life cover.
  • It’s too expensive. The cost of life insurance for the average person is usually less than they are paying for their car insurance but there is a disparity between cost and perception. According to a 2008 survey by Australian Institute of Superannuation Trustees (AIST) and Industry Funds Forum (IFF), 81% of consumers said that life insurance was too expensive. However, 61% overestimate the costs of life insurance, which can costs as little as a couple of dollars a day.
  • You’re unlikely to make a claim. This is a major myth that needs addressing. For those aged between 20-55, the mortality rate is 1/10 for males and 1/20 for females. Additionally, one in three people need to take time off work for more than three months, with half of those people needing to take more than 6 months off. Another issue is people letting their policy lapse. The most common time for people to take out life insurance is in their 30s. The most common time people either cancel or let their policy lapse is in their mid 40s. The major problem with this is that the majority of claims are made by people in their 50s. Don't become a statistic. Stay on top of your cover.
  • The most expensive policy is the best. While in many cases the more expensive term life insurance policy is the best, it all comes down to personal circumstance. With term life insurance you can be covered for the period of time when your death has the largest financial impact on your family.
  • You can’t afford it. Many people will assume they can’t afford life insurance before ever actually knowing how much it will cost. Therefore, before you dismiss life insurance as a luxury you can’t afford, find out how much coverage for your situation will be and you’ll probably find there is room in your budget after all.
  • It’s not necessary. Your car and your home and contents are probably insured so why is it more important to insure your possessions – which can easily be replaced – than it is to insure your life? If you still think life insurance is unnecessary, take a second to think about how your family would keep up with the household finances and ongoing costs without you there to bring in an income.

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Myths about whether you actually need it

  • You don’t have dependents, so you don’t need cover. Even if you are single and don’t have any children you still need enough life insurance to cover the costs of your personal debts, medical costs and funeral bills.
  • You’re not the primary income earner, so you don’t need cover. This doesn’t mean your loss wouldn’t have a financial impact on your family. While homemakers don't draw an income, the service they provide is priceless. The loss of a homemaker means that tasks like childcare, cooking, cleaning and the myriad tasks that they perform need to be taken on by someone else.
  • Everyone needs life insurance. As important as life insurance is, not everyone should needs it. In some cases if you don’t have any debts, or if you and your partner earn enough money to be self sufficient, your money may be better spent in an emergency fund or an investment.
  • Government benefits will look after your family. While there are some benefits in place by the government such as the Widow allowance and WorkCover to provide some respite for either the death or disablement of the primary income earner, these measures are generally not enough to support a family on.
  • Only one person in a couple needs life insurance. If both partners earn an income and are contributing to bills such as the mortgage and other living expenses, you’ll need insurance to cover that loss if something unforeseen happens.
  • You need life insurance. As mentioned above, not everyone needs life insurance. Everyones life insurance needs are different, which it is wrong to say everyone needs life insurance.
  • Your debts will be shouldered by your family when you die. This is another reason many people take out life insurance. However, only debts secured against an asset are affected after you die.
  • You need life insurance so your family can pay your final expenses.A life insurance policy is in fact one of the most expensive ways to provide funds for your family to pay for your funeral. If all you need to cover is funeral costs, look for a dedicated funeral or final expenses plan.
  • The amount of the life insurance should be equal to your lifetime income Simply multiplying your annual income by 10 is a popular way of calculating a life insurance benefit amount. However, it is the most accurate. The best way to work out your insurance needs is by using a self-assessment calculator or by speaking with an insurance adviser.
  • You can set and forget your life insurance policy. It is not only expensive but risky to ignore the details of your life insurance policy once the application is complete. It is important to review your situation regularly and notify your insurer of any changes that may qualify you for cheaper premiums such as quitting smoking or increasing your exercise. At the same time, if you start a family or take out a bigger mortgage, your benefit amount will also need to be adjusted accordingly.
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Myths about policies

      • You should buy cheaper term life insurance and invest the difference. Term life insurance is typically cheaper, but can expensive as you get older. As you move through a term life insurance policy you could also risk being uninsured when you do die, or your risk being uninsurable when the term of your policy expires.
      • Superannuation life insurance is enough. Most superannuation funds include a life insurance component, nor should you assume that the amount of life insurance you have through super is enough for your family and your individual needs.
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Myths about life insurance companies

      • Life insurance companies don’t pay out on claims. The big bad insurance company is a common villain in popular culture. However, life insurance companies know that their reputation and future success depends on honouring claims made by their customers. Therefore, if you were honest when applying for your insurance and you are making a genuine claim, insurers will aim to pay the benefit from your policy as quickly as possible.
      • Life insurance is too confusing. Yes, there are a lot of choices out there when it comes to life insurance. However, if you understand your family's needs you can quickly narrow down your policy options. Insuring your life is not like insuring your car or house, so expect the process to be a little more complicated. However, once you take the time to understand all of the variables of particular polices, you will be able to match them to the variables of your own life.
      • Getting life insurance is a hassle. The Internet has simplified so many thing, insurance included. You can research an insurer's reputation and compare its policies, inclusions and extras side by side, in the comfort of your own home. Plus, if you have a question or you need more information, most insurers have a help line you can ring, which is usually staffed late into the night and on weekends.
      • If you’re denied by one insurer you’ll be denied by them all. While it is true that one insurance company can access an assessment of you done by another insurance company, insurance companies often come to different conclusions about your insurability. For example, some insurers specialise is certain pre existing conditions, while others set out to specifically insure the self employed. Plus, each insurance company uses a different underwriter, so something one insurer considers a risk, may not even register on the radar of another.
      • You must have a medical exam to apply for life insurance. If you don’t have the time or your simply don’t want to be prodded and poked, it is possible to avoid a medical exam when applying for life insurance. As long as you are honest in your application, you can be approved for cover without a blood test or doctor’s visit.
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Some common questions you might have

Q. Do I really need life insurance?

  • A. It is easy to stick your head in the sand about your life insurance needs. Here are some statistics that show just how important life insurance is:
  • More than 235,000 working age parents become seriously ill or injured every year.
  • Over 17,000 people have to stop working for an extended period, or permanently every year.
  • More than one million working age parents have children and other dependents who are affected by death, serious illness or injury.

Q. Doesn’t life insurance cost a lot of money?

  • A. Not necessarily – one of the things you might have seen that’s not a myth is that life insurance can cost you the same as a daily cup of coffee. For example, for $250,000 worth of life insurance if you were a non smoker, your weekly premium could be:
  • A 35 year old male could pay $6.93 per week, and a woman $5.78 per week.
  • A 40 year old male could pay $8.08 per week, and a woman $6.35 per week.
  • A 45 year old male could pay $10.96 per week, and a woman $9.23 per week.
  • A 50 year old male could pay $17.31 per week, and a woman $13.85 per week.

Q. Don’t I have enough life insurance through my superannuation fund?

  • A. While it is true life insurance is included in most super funds, the benefit amount may not be enough for your situation. Plus, there are a number of drawbacks you should be aware of when relying on life insurance through your super:
  • The level of cover. Make sure you check the benefit amount of the life insurance included with your super, to make sure it is enough for your family’s situation.
  • Your super pays your premiums. The premiums for your life insurance don’t come directly from your pocket, but are paid from your super contributions. This can mean that there is less money available in your super fund when you retire.
  • Benefit amount can be taxed. If the beneficiaries of your life insurance policy are over 18 years of age, they will be classed as non dependents and the benefit amount they receive will be taxed.
  • Delayed payouts. Claiming on a life insurance policy through your super fund can see you or your family waiting lengthy periods to receive the benefit amount as the money is generally paid to the super fund, and the trustee then distributes the funds.

Q. Won’t the government look after my family if something happens?

  • A. To an extent, yes there are government benefits available to families who are unable to make ends meet. However, to qualify and apply for these benefits can be a lengthy and invasive process, and the funds are still not guaranteed. Plus, the money your family can receive in government benefits will cover only the bare essentials, and won’t allow for the full educations, comfortable house or bonding family holidays you had always planned to give them.

Q. Isn’t life insurance hard to organise?

  • A. With all the major Australian life insurance companies having an online presence, it is easier than ever to compare quotes and policies. You can search at any time of the day or night, you don’t have to feel pressured by sales people and you can take the time to compare the online quotes which are provided instantly, or via email. You can even choose a guaranteed life insurance policy which doesn’t require you to answer any medical questions or take a medical exam.

With all the major Australian life insurance companies having an online presence, it is easier than ever to compare quotes and policies. You can search at any time of the day or night, you don’t have to feel pressured by sales people and you can take the time to compare the online quotes which are provided instantly, or via email. You can even choose a guaranteed life insurance policy which doesn’t require you to answer any medical questions or take a medical exam.

Q. Don’t insurance companies do everything they can to avoid paying a claim?

  • A. If this myth were true it would be exceptionally bad for business, because insurance companies rely heavily on their reputation to keep and attract their customers. Insurance is all about trust, because yes – you are paying money for a very intangible product, and to convince you to part with that money, you have to trust that the product will be there is reality for you when you need it.

Australian insurance companies are governed by the Insurance Council of Australia and the Australian Prudential Regulation Authority, who ensure that all registered companies are following fair use guidelines, and adhering to their contracts and the legislation governing their services. You are also able to submit complaints and questions if you’re unsure about your insurer.

Myths and stories are fun when you’re around the campfire with the torch, but when it comes to protecting yourself and your family’s future, you need to make your decisions based on facts. Therefore, make sure you’re not seduced by any of the above myths about life insurance or income protection insurance, because nothing should get in the way of you looking after your family.

If this myth were true it would be exceptionally bad for business, because insurance companies rely heavily on their reputation to keep and attract their customers. Insurance is all about trust, because yes – you are paying money for a very intangible product, and to convince you to part with that money, you have to trust that the product will be there is reality for you when you need it.

Australian insurance companies are governed by the Insurance Council of Australia and the Australian Prudential Regulation Authority, who ensure that all registered companies are following fair use guidelines, and adhering to their contracts and the legislation governing their services. You are also able to submit complaints and questions if you’re unsure about your insurer.

Myths and stories are fun when you’re around the campfire with the torch, but when it comes to protecting yourself and your family’s future, you need to make your decisions based on facts. Therefore, make sure you’re not seduced by any of the above myths about life insurance or income protection insurance, because nothing should get in the way of you looking after your family.

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Term Life Insurance
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Term Life Insurance
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Save 25% on NobleOak life insurance and pay no premium for your first month.
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