Welcome to the home of life insurance tips. Find a guide to help you with all decisions involving life insurance
Tips before you buy
- Get familiar with the basics first. If life insurance policies are unfamiliar to you then it can be difficult and confusing to navigate. If it’s all new to you, read a beginner’s guide first. This can save you a lot of time and help you understand what’s being talked about.
- Learn about the types. All life insurance policies in Australia include death cover, but they can also come bundled with trauma insurance, income protection insurance and total and permanent disability (TPD) cover. Familiarise yourself with all four of these before purchasing a policy.
- Know your exclusions. The exclusions are conditions where the insurer will not pay out. These are found in all life insurance policies and can vary between providers. Some common exclusions are suicide, reckless behaviour, pre-existing conditions and similar situations. Different and separate exclusions will apply to death cover, trauma insurance, income protection insurance and TPD cover, as well as the combined policy as a whole. Look for deal-breakers, like an exclusion for a pre-existing condition you might have, and rule out such policies as appropriate.
- Consider stepped, level and hybrid premiums. Stepped premiums increase with age but are initially more affordable, while level premiums start off higher but remain at a fixed rate throughout the lifespan of the policy. In the long run level premiums usually offer considerably better value for money. Hybrid premiums are an increasingly popular option which combine some of the benefits and disadvantages of both. Some insurers’ hybrid premium plans might deliver better value, while others might be worse. You will need to consider each hybrid premium plan individually. Check out this chart to see how much you might save, and spend, with each.
- Consciously select your sum insured. The sum insured is the total amount payable in benefits. Some life insurance policies will have a separate sum insured for different components while others will have a single sum insured for multiple parts. Everyone’s needs are different, so you should generally calculate your cover needs in a careful and deliberate way. You can do this more easily by reading a guide to choosing the correct sum insured and with a life cover calculator.
- Compare as many policies as you can. Without comparing many policies you are unlikely to find a more ideal option. An online comparison can help you compare a number of policies side by side and in one place.
- Consider the long-term costs of a policy. Getting a good policy early and sticking with it is one of the keys to getting value for your life insurance policy, especially if you opt for level premiums. This is because life insurance gets a lot more expensive the older you are, and it can be very difficult to get cover after a certain age. Consider how the cost of life insurance changes with age and whether you’re able to get cover sooner, or need to wait till later.
- Look for advance benefits. Many life insurance policies will pay out advance benefits, which is a portion of the total lump sum benefit payment paid out ahead of the rest. The most common advance benefit conditions are funeral benefits that pay out a certain amount ahead of the rest to cover immediate funeral and related death costs, and diagnosis of a terminal illness benefits, where if a doctor says you have less than a year to live you can claim your full life insurance payout.
- Get cover sooner rather than later.Stepped premiums can lead to life insurance getting a lot more expensive with age, and it simply costs more overall to take out a policy when you’re older. And naturally, every day you go without cover is a day at risk. If possible, it is generally better to get a life insurance policy sooner rather than later.
- Look for discounts and add them up. Because life insurance policies are often held for many years, discounts can add up very effectively. Consider discounts when comparing prices as these can make a significant difference to overall cost, and be on the lookout for available discounts when looking for a policy.
- Don’t make a unilateral decision. Don’t surprise your partner with a life insurance policy for their birthday, because this is a decision that affects both of you and needs to be made together. The best option for you is a couples life insurance policy, or a family life insurance policy.
- Don’t be afraid to use a broker if you need to. There is a perception that insurance brokers have hidden agendas and are only interested in earning their commission. This is doubtless true for some, but overall it’s a very reputable industry whose providers’ expertise can be invaluable. Find out how to avoid the bad brokers and get the good ones if you want to use a broker with confidence.
Tips if you currently own a policy
- Update your policy. Are you certain that you didn’t accidentally miss a payment two years ago and have been without cover since? Did you have a child and forget to add them to your policy? Have you developed an excluded medical condition since taking out the policy? There are a number of situations that may affect whether your life insurance policy is active. Remember to update your insurer if circumstances change.
- Remember that cancellation should be a last resort. When money’s tight, insurance policies are often cancelled. While this might be a sensible step in some cases, it is very rarely a good idea to cancel your life insurance policy, especially if you’ve had it for more than a few years. Thanks to your advanced age it will almost certainly cost a lot more to get a similar policy now than when you first took it out. Furthermore, the benefits of life insurance are all the more important when you’re in a tough financial situation, because that’s when loss of income, disability, serious illness or death will be most devastating. Cancelling your policy is easy enough, but should not be done lightly.
- Constantly compare new options. Always be on the lookout for a new life insurance policy, and be ready to switch if getting a good deal is important to you. Bear in mind that there are costs involved and it’s not always worth it, but keep your eyes peeled nevertheless. If you’re stuck in a less-than-ideal policy you might be better off cutting your losses and changing provider rather than sticking it out.
- Mark your renewal date on the calendar. Some policies let you adjust cover and conditions more freely than others, including beneficiaries. In many cases, however, you cannot change your sum insured or cover options outside of the renewal period. This is the annual date you renew your policy, and sign up for another year of cover. This is the preferred time to make changes to your policy, and is less likely to incur fees than adjusting your cover at other times.
- Know the cooling off period. If you’ve just bought a new life insurance policy then you’re most likely still in the cooling off period. This is a period of time after initial signup or renewal when you can cancel or switch your policy without penalty. The precise terms may vary between insurers, but generally you are able to get a full refund of all premiums paid, but not fees, provided you have not made a claim. By contrast, switching or cancelling outside the cooling off period usually means you won’t get any refunds at all. Knowing your cooling off period is an important part of how life insurance works because it’s when you should cancel or adjust your cover.
- Be aware of your available death benefits and funeral cover. If today was your last day on Earth would you do anything differently, like checking up on your funeral cover and death benefits? You don’t always need to reexamine these, but should generally be aware of what kind of benefits your family will get if you pass away. Be aware of this and consider it for your financial planning purposes. If you don’t get many or any death or funeral benefits, or if it’s not paid as an advance payment, then you might want to put away a bit of money to be used by your family for the immediate costs if something happens.
Tips about pre-existing conditions and health
- Know how your insurer defines “pre-existing”. Different insurers may use different definitions, but generally all refer to a health condition that you have received treatment for or been diagnosed with prior to taking out your life insurance policy. If you have pre-existing conditions that may impact your ability to get cover it is important that you familiarise yourself with these definitions.
- Be aware of relevant health issues. Some relatively common medical conditions will likely affect the type of cover you are able to get. Get an overview of the more common ones so you can consider your life insurance needs accordingly.
- Consider hereditary issues. Even if you have not been diagnosed with certain conditions, having a family history of some hereditary illnesses can impact your premiums because you’re at a statistically higher risk of experiencing them at some point. On the bright side, these are some of the things you really should have cover for if possible, because they’re a high risk for you. You might pay more for cover against these, but that means you actually are covered so you can get real peace of mind.
- Actively manage your health. It can be hard to get motivated to work out and stay in shape. Would it be easier if you knew that staying in shape can directly translate to more money in your pocket? Staying fit can net you an array of rewards, bonuses and discounts.
Tips about tax
- Find out which benefits are taxable. Generally speaking, the benefits paid out by life insurance are not taxable so your beneficiaries get it all. However, there are certain exceptions and these can be different for the death cover, TPD, trauma insurance and income protection components of your policy. There’s too much information for us to cover it all here, so browse our comprehensive guide to learn how and when life insurance benefits are taxed.
- Claim tax deductions on premiums paid. Some of the premiums you’re paying towards life insurance may be tax deductible. Find out whether you’re claiming as much back as you can.
- Consider life insurance inside, and outside, superannuation. If you have a superannuation fund, and you probably do, there’s a good chance it comes with at least some type of life insurance. You should know with certainty whether or not this is the case, and if so what kinds of benefits it offers. Consider this before taking out a fresh policy because it may affect what level of additional cover you need. There are differences between self-managed super funds (SMSFs) and managed super funds to be aware of and it might be a good idea to go over our guide to life insurance and superannuation for an in-depth look at what you can do.
Tips for claims and payouts
- Give serious consideration to a trust fund. You must consider what would happen if your children suddenly came into a sizable life insurance payout. Can you trust your beneficiaries to sensibly manage large amounts of money? You’re probably better able to answer this question than anyone else, but you still need to be brutally honest in your assessment. If, after some soul-searching, you’ve decided that the answer is no then you may want to consider setting up a trust fund. These are difficult situations, and if you can’t reach the solution alone then a life insurance adviser may be able to help.
- Make sure your family knows how to make a claim. This step is overlooked with surprising regularity. Remember to discuss the policy with everyone involved, as reasonable, and make sure both you and they know how and when to make a claim.
- Know how to get the right documentation. To successfully claim, your beneficiaries will typically need to complete a claims form (provided by the insurer), the policy document and schedule which lays out terms, conditions and benefits, and certified copies of the relevant evidence of death, disability or other applicable condition. Ensure your beneficiaries can get access to the right documentation and are able to certify them as needed.
- Know what to expect. Familiarise yourself with how long it usually takes your insurer to pay claims, whether or not you should expect any extra assessments or haggling, how benefit payments will be made and how big they’ll be, and other applicable terms. Life insurance is how you take the reins on happenstance and misfortune so it’s important to follow through, do it right and be well informed.
How much will life insurance cost?
When toying with the idea of getting life insurance, the first thing that would come to mind to most people is the ideal amount of insurance needed which gives you ample cover for any unexpected events, such as illness or death. How much life insurance do you need to insure your life?
The answer, of course, depends on your current status and condition. Although finding the exact amount of life insurance can be quite tricky, you will be able to make a rough estimation of how much you need by basing it on your marital and financial status and the number of dependents you have. Since it is your family who will benefit from your life insurance, their well-being should also be your first consideration when you draw up a life insurance policy. Look at the difference of being single or married, or having babies can make with your life insurance premium.
- Are you single or married? Being married changes everything because once you tied the knot with someone, you should cherish everything about him or her – debts and all. Furthermore, your spouse becomes your dependent even if he or she works. If you are at the retirement age, consider whether your spouse can survive financially if you suddenly die. On the other hand, you and your spouse can set aside an amount to draw out a policy for both of you, then invest the rest to other financial vehicles.
- How many dependents do you have? Children – they make a lot of difference. You don’t just think of those cute antics, but about college education as well. Drawing up an insurance policy can help you in tough times.
- What outstanding debts do you have? What are the chances that your family will be able to pay up any outstanding debts you may have when you die? Will they have the resources or savings to pay up the debts and other mortgages you will leave behind?
- Will they have enough to live on? Next question is whether your family is able to financially survive without you leaving anything. Moreover, consider if they will be able to maintain the same lifestyle they have now when you die.
- What is the purpose of your policy? Each person has their own reasons for taking out they get life insurance cover. How you will use your insurance would also affect the type of policy you will choose and its cost. If for example you want insurance for to cover your children’s education or a loan, then you need a short-term policy. However, if you want insurance to pay for your final expenses, such as your funeral, then a basic policy is what you need.
- How much will your insurance policy cost in the future? You should also consider how much your policy will cost in the future based on the inflation rate. Will it be enough after 10 or 20 years?
Aside from the cost of your premiums, time is also important when it comes to your insurance. If you get term life insurance, you might notice that prices of the policy are steadily decreasing; therefore, by re-evaluating your policy regularly, you will know whether you will increase or decrease your cover. Moreover, the real question is whether you have in need of life cover beyond 65 years old or after 20 or more years. At that time, your children might have finished university; hence, you might want to reconsider which is best for you and your spouse at that certain point of your lives.