spouse-discussion

Talking to your partner about life insurance

Is it time for "the talk"? Run through these points and get it done smoothly.

Some talks make the talk about the birds and the bees look easy and talking to your partner about life insurance is definitely one of them. You’re basically reminding your husband, wife or partner that either of you could pass away at any moment, so it’s probably not going to be a barrel of laughs.

A tough talk that's necessary

However difficult it is, life insurance is an important form of protection and it’s probably not a good idea to put it off. This guide can help you tick off the essential boxes to get it done and get signed up for the right long-term cover at the right price. Have the talk once, do it properly and then you can put it behind you.

Before you approach your partner: How to prepare

The last thing you want to do is false-start the conversation a dozen times. Plan ahead and have the talk when you both have a good couple of hours to spare. A pre-talk checklist should include the following:

  1. Work out your cover needs
  2. Get an idea of how much it costs
  3. Understand the options available

Life Insurance Calculator FormulaWorking out your cover needs

The sum insured is the total amount payable in the event of death. Generally, it should be enough to cover the essentials with a buffer for unexpected costs.

The formula or calculator below may be useful for a quick estimate of the money you’ll need. You might try doing both, and then checking for a significant difference between the two. If they’re pretty similar then that might be your ballpark figure for the required sum insured, and you can then use this amount to look at costs.

Need help?

Read the needs guide Speak to a consultant

Working out the costs

Prices can vary between providers and checking a range of quotes can let you see how much it will generally cost. Our comparison tool lets you put in your sum insured and can then show you monthly prices from more than a dozen different providers.

Know the options available

At its core, life insurance pays benefits when an insured person dies. The other options you check with the above tool can extend your cover to pay out in other circumstances.

  • Inability to work. Income protection insurance can pay monthly benefits if the insured is unable to work for an extended period.
  • Serious medical events. Trauma insurance can pay a lump sum in the event of specific health issues such as cancer or a heart attack.
  • Permanent disability. Total and permanent disablement (TPD) insurance can pay a lump sum in the event of permanent disability.

How to have the talk

Ideally, you want to do it once and do it right, so you get a policy that suits your needs and doesn’t cost more than it needs to. Before getting down to business, you should make sure both of you are on board. If one of you is not ready to sit down and have a discussion, then the talk might end up being for nothing.

Dealing with objections

To help get your partner on board, it can help to call out of the practical difference life insurance would make if something happens as well as the benefits of having the talk sooner rather than later.

  • Do you have children? If something happens, life insurance can make all the difference for their futures.
  • Do you have a mortgage? Life insurance benefits can help you pay off your entire mortgage if something happens.
  • Are you a single income household? Life insurance benefits may be commensurately more important when you might lose all income.
  • How old are you? Life insurance prices tend to increase with age, and it can be considerably more cost-effective to have the discussion sooner rather than later, especially if a pre-existing condition develops before you take out a policy. If your spouse want to keep putting it off, it might be helpful to remind them that the longer it takes, the more it will generally cost later on.

Ok so we're both onboard to chat, now what?

In your talk, you should cover the following topics:

  1. Agree on your sum insured needs
  2. Agree on your budget
  3. Discuss the cover types
  4. Pick out your policy

If you run into specific sticking points, such as not being able to work out or agree on the right sum insured or policy types, it can often be useful to consult a life insurance financial advisor to help you piece together your cover needs.


Agreeing on your sum insured needs

Consider both the required sum insured and the different types of cover you might want. It can be a good idea to draw up an action plan in the event of something happening to help check your sum insured in practical terms. You need to think about the following:

  • Your household earnings. Talk about your household income, your investment earnings and the value of your assets. Discuss what you’ll be selling if something happens and whether you’ll be re-entering the workforce later. For example, you might plan to use benefits to pay off the mortgage and then move into a smaller place while renting the home as an additional income source. This would also allow you to eventually sell the house when the market is favourable.
  • The age of your children. How long will you need to provide for your children? One of you might want to only account for expenses up to age 18, while another might want an additional buffer. Depending on their age, you may also need to consider the possibility of extra childcare and homemaking expenses, such as nannies, if there will no longer be a stay-at-home parent.
  • Your expenses. Revise your expenses in line with anticipated changes. For example, if you’ll be paying off all your credit card debt and your mortgage, then you may not need to plan for those expenses and can count on having additional assets.

It’s important to have a clear action plan with or without insurance. These are complex questions, and it’s much better to think about them on your own terms instead of having them thrust on you at the worst time possible.


Agreeing on your budget

Decide what your monthly life insurance budget is right now, and how it might change in the future. You will often able to adjust your cost by changing your cover later. For example, if the insured person is currently a smoker, but quits later, premiums may decrease considerably.

  1. Decide on your current budget. This lets you compare only policies that fall within this price range.
  2. Decide on your premium structure. This can have a substantial impact on your long-term costs.

What’s your current budget?

It should be an amount that you both agree on and that you can keep up with. If you cancel your policy, it will typically cost more to get a new one later as premiums will be calculated in light of your increased age and any health conditions that may have developed.

Once again, getting cover sooner is generally preferable to getting it later, even if you aren’t in ideal health right now. For example, your partner might quit smoking and lose weight over the next five years and could then take a new medical test which awards lower premiums. If you can both agree on this type of plan, and stick to it, then erring on the side of more cover and higher premiums might be the way to go. It can also deliver a nice financial motivation for getting in shape, which might be the extra push that’s needed.

Decide on a premium structure

An ideal life insurance policy is one you can hold for decades to come, and your premium structure can make a considerable difference over time. The two main options are stepped premiums and level premiums.

Stepped premiums increase with age and can get very expensive as decades pass. To partially counter this, you can access options like a “premium freeze” which lets you freeze your premiums in place at the cost of a decreasing sum insured. Generally, if you’re after an effective long-term policy, it may be a good idea to avoid stepped premiums.

Level premiums can be preferable for long-term policies. These are fixed at the same rate as long as you maintain the policy, but will cost more than stepped premiums for younger people. If you’re after long-term cover, the extra initial cost of level premiums is often worth it.

  • You might start with a sum insured on the lower side of your calculations or skip other cover types for the moment in order to keep costs manageable and then add them later.
  • Note that your flexibility will vary between policies, and options may be limited. For example, you will generally be able to increase your sum insured with almost all policies, but may not always be able to add additional types of cover.
  • The price increase you get from increasing your sum insured later will be based on the age at which you first signed up for the policy. For example, cover for a 40 year old might cost 1.5x as much per dollar insured as cover for a 30 year old. If you sign up at 30 and then increase your sum insured at age 40, you’ll still be paying the 30 year old prices. In this way, getting cover with level premiums sooner means you can get enormous savings later, while still getting the sum insured you need.

Deciding on additional cover types

The additional cover options you choose can have a significant impact on your premiums. While the cover can be important, a policy still needs to be affordable and you may want to skip some types of cover. For example, you might decide that TPD insurance isn’t worth the extra cost if you already have trauma and income protection cover.

Once again, it’s a good idea to talk about things in practical, real-world terms. Specifically, you’ll want to think about your partner’s occupation, and how likely you are to make certain claims in line with family history, potentially dangerous hobbies and other factors.

Life-stages-Graph

Take note when combining cover

Important note: When you combine these cover types into one policy, a payout for one situation will be taken from your overall sum insured. For example, let’s say you take out a combined life/trauma insurance policy with $1 million life cover and $500,000 trauma cover.

  • If you make a trauma insurance claim at some point, then your remaining life insurance sum may only be $500,000.
  • If you had $500,000 of life cover and $500,000 of trauma cover, then a trauma insurance claim for the full $500,000 would take it all and your policy would end.

Remember this when considering your cover needs and factor it into your action plan.

This cover typically pays out for long-term, but not necessarily permanent, inability to physically (or mentally) do one’s job.

When would I need this type of cover?

If you or your partner:

  • Has a physically demanding job 
  • Is not entitled to WorkCover
  • Are reliant on one persons income 

Note: The waiting period significantly affects the cost of this addition. This is how long the insured person needs to be unable to work before they can start receiving benefits. A longer waiting period can make this cover relatively affordable while still letting you have it for serious situations.

Read up on income protection and get quotes

This pays a lump sum that you receive for specific non-fatal health events, such as blindness, cardiac arrest and much more, which you can spend any way you want. It can be a useful addition to help access better medical treatment or shore up your financial position by paying off your mortgage or debts sooner.

When would I need this type of cover?

  • If you want protection that pays out upon the diagnoses of a condition then this is a useful form of cover.

Note: This type of cover typically remains until the age of 99 and someday your children may be making a claim on your behalf, such as trauma insurance for Alzheimer’s disease.

Want to learn more about trauma insurance?

TPD cover pays out a lump sum. You can use this payout to help adjust to the disability through home modifications, pay for additional medical expenses or shore up your finances.

Depending on the policy, total and permanent disability may be defined as an inability to work, or as an inability to function independently. Policies will often use the “work” definition until retirement age, at which point they’ll start using the “independence” definition.

You will often have the choice of “any occupation” and “own occupation” TPD cover. The former can pay out for permanent disability defined as “an inability to work any occupation” while the latter can pay out for disability as defined by “an inability to work one’s own occupation.”

When would I need this type of cover?

  • If you and your partner are looking for protection against circumstances that leave you unable to work permanently and are reliant on each others incomes to live.
  • Own Occupation cover is typically more expensive than Any Occupation as the “disability barrier” is higher.
  • If you’re including this type of cover, consider your partner’s occupation when choosing your cover type.
  • Where you have both trauma insurance and TPD insurance, you may be able to claim two types of payout if a trauma event results in permanent disability, such as if a stroke  leaves you in a wheelchair or with brain damage. However, you do have the choice of only claiming one in order to leave your remaining sum insured higher.

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Read the full guide to TPD insurance

Decide which cover types you need as well as the cover you can probably do without and consider how it works in line with your agreed budget.


Picking out a policy

Once again, this life insurance quote engine can be a good way to find ways to match your needs to your agreed monthly budget. When you find options to suit, you can also use the quote engine to get in touch with insurers for the main application stage, which includes medical testing and other in-depth procedures. By selecting “View Details”, you can see which of the following options are included in the policy:

  • Funeral expenses benefit. An advance payment to help with initial expenses while the insurer processes the rest of the claim.
  • Interim cover. This is the amount you are insured for while the insurer is processing your application.
  • Guaranteed renewable. This option means you can renew your policy year after year. This feature is very important for long-term cover.
  • Accidental death benefit. This cover pays out an additional sum on top of your sum insured in the event of accidental death, such as a car accident.
  • Terminal illness benefit. This benefit pays out the full life insurance sum in the event you are diagnosed with a terminal illness.
  • Financial planning benefit. This is an extra amount paid that you can use for financial planning services.
  • Future insurability. This is the amount by which you are able to increase your sum insured without taking another medical test.
  • Complimentary child cover. This is the amount of complimentary insurance paid out in the event of a child’s death.
  • Worldwide cover. This option covers you anywhere in the world.
  • Loyalty benefit. You may be able to get loyalty benefits for being a long-term customer or having multiple policies.
  • Benefit indexation. This benefit ensures that the sum insured is indexed for inflation and increases along with the cost of living. This can be a useful option for making sure you are effectively covered without needing to regularly update your policy.
  • Premium waiver. This is usually an optional extra that typically comes at extra cost. This waives your life insurance premiums in the event of disability.
  • Premium freeze option. This is an option that may be included in a stepped premium life insurance policy. If your policy doesn’t offer this option, it means the policy may only come with level premiums and does not have a stepped premium option.

These are just some of the options that you can find in policies. Before signing up for anything, you’ll get a chance to review the product disclosure statement, ask questions of the insurer and find out what you need to know in the fine print.

Once you’ve made an appointment with an insurer, you’re (almost) done. The hard part was working out your cover needs and starting the conversation, but that’s behind you now. All that remains is to make sure you fully understand the policy and then sign up. You’ll generally be given interim cover while the insurer processes your application, and you will be notified when it’s all finalised.

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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.
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Andrew Munro

Andrew writes for finder.com.au, comparing products, writing guides, sniffing out deals and looking for new ways to help people get the most out of their money.

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