Choosing a Life Insurance Plan

Key Steps to Compare Different Life Cover Policies

Key Facts

  • Features and benefits provided may impact the premiums payable dramatically.
  • It is critical for all policyholders to review the product disclosure statement before submitting their application.

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Life, even without its trappings, is precious. And people would do anything to protect it. That is why agencies that deal with security are thriving providing services from installing locks and safety devices to acting as bodyguards. However, despite this obsession in protecting life, there is one important thing that has been overlooked – life insurance.

Perhaps it might be the bad press or hearsay, or even the morbidity of the thought which make people avoid the issue of getting life insurance. If truth be told, unless you have enough money to pay your final expenses then you don’t need insurance. However, very few of us have that much money saved, so getting life insurance is one of the most logical steps for you to take.

Life insurance does not only protect you, but your family as well. Although a lot of households or individuals don’t have it, anyone who has kids under 18 should have life insurance. Simply put, you need to protect your loved ones who depend on your income if you die. This applies if a spouse or partner would be financially distressed by the lost income, as well as if a parent, sibling or adult child is similarly reliant.

Life insurance should never be considered a burden. When you are able to choose the right kind of insurance policy according to your needs and budget, it would be a great blessing.

Different Types of Cover Available in Australia

The fastest way to look after yourself and your family in case of emergency is to create a savings fund. However, stashing away amounts of money may take a long time before it can reach a substantial total, enough to be financially free. But by that time, it may not even be enough, given the ever changing climate of the economy.

The best option for emergency funds is taking on insurance. There are various sorts of insurance that you can sign up for to protect you, your family and your assets.

Choosing the Right Insurance

Insurers offer a variety of policies that can cover specific situations and needs. The kinds of insurance you can take out include:

  • Income protection: A person’s usual source of money is their employee income, which provides for their daily needs and lifestyle. Income protection is essentially a temporary continuation of your income. Income protection policy usually pays a monthly benefit of up to 75% of your regular salary in cases when you get too sick --- or if you are injured and cannot report to work. Income protection insurance gives you income to help you continue paying for expenses such as utility bills, mortgage, tuition and most of your daily living expenses.
  • Trauma cover: Some insurance only covers instances of death or disability. Trauma insurance cover works for instances where you suffer from a condition that cannot be cured. These include cancer, heart attack, a stroke or major head injuries.
  • Total and permanent disability: Total and permanent disability renders you incapable of earning money, and without money, you will have a hard time paying off the expenses you will incur as you rehabilitate. The benefit you get from TPD cover will help you meet your medical bills, repay debts and help you start on providing for your future.
  • Death insurance: While the other insurances mentioned would provide for your personal use, death insurance will actually provide for your family. It offers security for them by providing a lump sum payment if you die. Some policies make provisions for advance payment of the sum you have insured if you are diagnosed with terminal illness. Death insurance is the one insurance you can get without having to consider what sort of occupation or lifestyle you have. It is something you need to get especially if you have people like family dependent on you.
  • Business insurance: If you run your own business, the insurance you need to get will be one that will protect the business should you be unable to work and maintain it. Business overhead insurance is ideal for you if your business income is generated by and heavily dependent on your own efforts.

Insurance through the super

In Australia, you can avail of the government’s superannuation services. Superannuation is a pension paid to an individual who is retiring from the workforce when they reach their preservation age. This pension is from the accumulated contributions you and your employer made while you were still working.

Individuals who choose to sign up for a super fund get some sort of insurance coverage. Your insurance premiums are deducted from your superannuation account. This can be any for any of the following insurances: death, disability or income protection. Aside from that, there is also the option to increase this cover. It is more tax effective, particularly if you have a higher marginal tax rate.

Factors to Consider before Choosing a Policy

Just like any major decisions you will make for you and your family, choosing the right insurance policy needs a lot of consideration in order to get what you really need. Certain factors need to be considered and put to the test. Haste could lead to waste as the old maxim goes, so before grabbing the first policy offered to you, try to consider the following:

  • Your needs – What is right for you and your family? Think about the savings it can cost you before you go which type of insurance policy you would go for – term or whole life insurance. Determine which insurance need is the most important for you and your family at this point in life. It is wise to insure first the risk that you are more exposed to or more likely to create great damage when it occurs.
  • Your budget – After determining your needs, next is the budget. How much can you afford for insurance that will protect your future.
  • Your tax situation - If you belong under the high tax bracket, permanent insurance could be the best choice for you because the savings built up in the policy are tax-deferred. Within permanent insurance the face value of your life insurance policy will be available to your family immediately after your death. With ordinary investments your family may have to wait for the benefits or be forced to sell investments at a lower price.
  • Your agent – A good agent can help you bag some of the best deals in the market. Therefore, you need an agent you can trust. An agent who will take into account your present and future needs and how they play in the general scheme of things.

Which Policy is Right for You?

Finding the right life insurance policy is the result of careful planning. The time you spend to shop around and study the insurance policies from different insurance providers would help you clearly understand each feature, limitation, and benefit included in the policy. By understanding them, you can easily decide what you really need and the level of cover you should have.

Life insurance has basically two types – term and whole life insurance. Each has its own pros and cons. However, as insurance providers continue to find ways to solve the underinsurance problem in Australia and make insurance available to the general public, they introduced a third type of insurance policy – the return of premium life insurance plan. To explain further how each of the three works, below is the description and the pros and cons of each to give you a balanced insight.

Term Life Insurance

Term life insurance is the easiest and least complicated type of insurance policy. All you need to do is choose how long you want to be covered. The number of years you choose would also determine how much premium you are going to pay.

  • Advantage: It is the cheapest type of insurance. The low cost rates allow you to buy policies which have larger face values.
  • Disadvantage: It has an expiration date. It means that in the event you die and the policy is still effective, your beneficiaries will receive a lump sum benefit. However, it does not pay you any benefits if you outlived the policy.

Whole Life Insurance

This type of insurance comes with a savings or investment component. The cash value allows your part of your premium to build up tax-free. You can also use this cash value in other purposes such as an education fund for your kids or collateral for your bank loan.

  • Advantage: As the name suggests, it is permanent and will give you cover until you reach the ripe old age of 100. As long as you pay your premium, you don’t have to fear of the expiration date.
  • Disadvantage: The investment component makes whole life insurance very expensive and complicated.

Return of Premium Insurance

This one is a combination of both the term and whole life insurance.

  • Advantage: It is a win-win situation - your family will get the death benefit should you die, and you get every dollar you contribute when you outlive the given term.
  • Disadvantage: There are no interests. Whatever interests the investment has accumulated stays with the insurer – this means a zero return for your investment.

Life insurance is a great tool to help you weather life’s uncertainties. By choosing the life insurance plan, you can get more benefits from it. Therefore, plan carefully and wisely before choosing an insurance policy.

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Coverage is the amount of money that you will be paid in the event of a claim. An insurance consultant can help you determine an appropriate amount. Calculator
Provides a lump sum payment if you become totally and permanently disabled and are unable to return to work.
Provides a lump sum payment if you suffer a serious medical condition. Cover can be taken out for 40-60 medical conditions depending on the policy you choose.
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Compare Life insurance quotes from these direct brands

Details Features
Life Insurance
Life Insurance
Choice of cover options and flexible premiums to suit budget. No lock-in contracts and fast application.
  • Benefit payment of up to $1,500,000
  • Cover for applicants up to age of 65
  • 30 day cooling-off period
Go to site More info
Term Life Insurance
Term Life Insurance
Receive up to $1,500,000 in life cover and pay nothing for the first month. 10% Multi-life discount available.
  • Lump sum cover from $50,000 - $1,500,000
  • $15,000 Cash advance benefit
  • 10% Multi-life discount
Go to site More info
Term Life Insurance
Term Life Insurance
Save 25% on NobleOak life insurance and pay no premium for your first month.
  • Benefit of up to $1,500,000
  • Available for applicants up to 69 years old
  • 21 day cooling off period
Go to site More info

William Eve

Will is a personal finance writer for specialising in content on insurance. While he cannot give personal advice to clients, Will enjoys explaining the intricacies of different types of protective cover to help individuals and businesses find affordable cover that won't leave them underinsured.

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