A death in your family

It's when you experience a death in the family that you come to realise the true worth of life insurance.

Preparing for death

It is when you experience a death in the family that you come to realise the true worth of life insurance. The death of any family member is an emotionally stressful time. It is not a time to have to worry about your financial future but this unfortunately, is not always the case.

Far too often the death of a family breadwinner is overwhelmed with a fear of what the future holds. The future of a young family living in a home they are buying often depends on both partners contributing to the family's ongoing lifestyle. The loss of either partner could mean a serious reassessment would have to be made about whether they could afford to remain in the family home or not.

Without adequate life insurance the odds would be that they would have to leave. This would mean relocating, probably to a rental premises and being subjected to the whims of a landlord as to how much they would have to pay.

Life insurance eases the heartbreak

If life insurance was made compulsory a lot of financial heartbreak in the world could be eliminated. At least in Australia today superannuation is mandatory for all employees, however, superannuation's main aim is to provide an adequate sum of money for the worker to retire on.

Too often the life insurance component is too small to adequately pay all the needs of a worker's family should he or she die before retirement. In fact, recent statistical figures have shown the average life insurance cover held within a superannuation fund is only $70,000.

You would not need an actuary to tell you that this amount would not be enough to replace the earning capacity of a family breadwinner.

What happens should you die

If you were to die the person named as the owner of the policy would receive the benefits. If you yourself were the owner of the policy on your own life the proceeds will go into your estate, unless you have named specific people, or organisations, to be the beneficiaries.

If you leave a will this will determine how the proceeds will be distributed. If your life insurance is included as part of your superannuation fund package your death certificate will have to be produced including the original policy itself.

It is wrong to assume that life insurance and superannuation fund proceeds will always be paid into the deceased estate on his or her death. The life insurance policy held within a superannuation fund it is held in trust on the fund members behalf. The proceeds will have previously been readied to go to the member on retirement, or his or her beneficiaries, if the members death was to occur first.

It is the fund's trustee's duty to ascertain whether the member has dependants at the time of death and if so make provision so they share in the proceeds. There is much less tax to pay in this way rather than the benefits going into the member's estate.

It is commonplace today to include a terminal illness clause as part of your life insurance contract, if you have done this you will receive up to 80 percent of the life insurance benefit on diagnoses of the terminal illness and your beneficiaries will receive the remaining 20 percent on your passing.

Why leaving a will is important

It makes it a lot easier all round if you leave a will that explains exactly how you want your estate to be divided up on your passing. Besides it explaining how your assets are to be distributed it can also name who you want to be the executor of your will.

This is usually a person who you feel understands what you want to happen and is a further protection as to how your assets are to be treated. Before any of this can happen the executor has to formally apply to the Supreme Court for what is known as "a grant of probate". This is the court's recognition that the will before it was your last. Once the Supreme Court has dealt with it and probate is granted your assets can be treated as you wished them to be.

Almost half of all Australian who die, do so without leaving a will. When this occurs it is known as you having died 'intestate.' When this happens it is usual for the Probate Court to distribute your assets in the following manner:

  • The first priority is your surviving spouse and your children.
  • If you have no children your spouse will be the sole beneficiary.
  • If you haven't got a spouse but do have children they will receive the benefits, adopted children have equal treatment as do biological children. After these children will come any half brothers or sisters.
  • If you have neither a surviving spouse nor any children your proceeds will go to your next of kin.
  • Failing all this and no relatives can be found your estate will go to the state.
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