Not sure whether you need life insurance? Find out how your needs change at various life stages.
As you get older your priorities change. While one financial product may be extremely important to someone entering retirement age, it may not be relevant to someone just starting out in their career. Understanding your financial needs at these various life stages is imperative to your financial security.
At each stage of your life your insurance needs vary, which is why it's important to find the appropriate level of cover with the help of an expert.
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Life insurance and early adulthood (18-30)
In these formative years, many young people are just finding their feet and beginning to realise just what financial independence means. Most don’t have financial dependents. While they may still be living with their parents, many young Australians own a car or have a credit card.
But what if that car was bought on a finance plan or that credit card was used to finance a trip to Europe and you were suddenly unable to pay those bills? What would happen if an illness or injury meant that you were no longer able to keep up with those payments?
One of the major benefits of taking out insurance during your early adulthood is that your premiums are drastically cheaper. The reason that premiums are generally cheaper is that younger people present less of a risk to insurer because of both their health and the amount of time that these people will be holding their policies.
Reasons why you should consider cover include:
- Paying your rent in the event you are no longer able to work
- Making sure your household bills are paid
- Keeping up your normal lifestyle
- The continuation of your savings goals
- Paying for any education costs
- Securing your financial independence
Cover worth considering
Income protection insurance
- Income protection insurance is a good idea for people in this life stage to consider. Income protection provides a revenue stream of 75% of your current wage and can help in situations where you are no longer able to work due to sickness or injury. Additional benefits may be provided to cover costs associated with rehabilitation.
- Personal accident insurance is normally a little cheaper than income protection insurance but it only protects policyholders from injuries that are the result of an accident, not illnesses. Cover is usually provided as a lump-sum benefit and may vary depending on the nature of the accident and injury suffered.
Term life insurance
- While term life insurance may not be critical for everyone in this age bracket, t may still be worth considering. The younger you take out life insurance, the lower your premiums will be in the long run as the likelihood of you having a pre-existing medical conditions is significantly lower than an older applicant. Term life insurance is definitely worth considering for young parents and first home buyers of this age group.
- Getting started on your superannuation early is the most effective way of making sure that your financial future is secure. It is important to try and keep all of your super in one place, as having multiple accounts only hinders your retirement planning. It is never too early to start thinking about your super. One of the other benefits of superannuation is that many funds have built in cover for life and TPD insurance. For those who don’t feel the need to take out a comprehensive policy at this life stage, this is one possible option.
Total and permanent disability (TPD) insurance
- Total and permanent disability (TPD) insurance provides a lump sum payment should the policyholder no longer be able to work because of a disablement. This benefit payment can help to cover ongoing medical treatments, support your family or cover mortgage repayments. TPD is separated into two policy types any occupation and own occupation. Any occupation is the cheaper of the two policies to take out but it is the hardest to make a claim for as you will need to prove that you are no longer able to work in any profession rather than just your current profession. TPD is one of the most popular types of cover for this age group, particularly TPD for those engaged in physical labour. Can be taken out as standalone cover or bundled on to life insurance policy.
Importance of having life insurance in adulthood (30-55)
This is the time in most peoples live that are filled with those life milestones like marriage, buying your first home and having children. While these are all memorable events, they can also bring their share of financial baggage.
Reasons why people in this life stage should consider cover include:
- paying off the mortgage
- continuing finance payments on a new car
- paying off household bills
- continuation of and investments
- maintaining their family’s current lifestyle
- funeral expenses
Cover Worth Considering
This group can benefit from taking out the same covers as listed above for those in early adulthood but there are other cover options that they may want to consider in addition to income protection, personal accident and term life insurance (which is especially important to those in this life stage).
- Trauma Insurance provides a lump sum payment to the policyholder should they suffer one of the trauma conditions defined by the insurance provider. Trauma insurance benefits are made in a lump sum payment when an insured event happens and is designed to help the policyholder and their family cover things like household bills and medical costs associated with conditions such as Alzheimers Disease, Coronary Bypass Surgery and Terminal Illnesses. For a more comprehensive of the conditions covered, have a look at the Trauma Insurance page.
Total and Permanent Disability (TPD) Insurance
- Total and permanent disability (TPD) insurance becomes more important in this life stage as people generally have more financial commitments.
- Mortgage protection insurance a simplified form of life insurance designed purely for covering mortgage payments in the event of death, illness, injury or involuntary unemployment.
Life insurance for pre-retirement (55-65)
At this time in most people’s lives, their careers are beginning to wind down, their children have left the nest and their mortgages are that much closer to being paid off. While this segment of the population is gearing up for retirement, they still have financial obligations that need to be met.
Since people who are in this life stage are preparing for 20 plus years retirement, it is important to make sure that your finances are in order. Reasons why people in this life stage may consider cover include:
- protecting their assets
- eliminating their debt
- preparing for any health issues
- helping their children with their finances
- planning for their retirement
- creating wills and trusts.
Cover Worth Considering
Most insurance needs are cumulative, which is why there are always options to bundle policies together. By this life stage, many people will already have some combination of the cover options listed for the previous life stages. Whether it be a comprehensive life insurance policy that covers trauma and TPD or the insurance provided through your super, you will most likely have some form of protection in place.
Term Life Insurance
- At this time in your life, your situation has changed, you may no longer have financial dependents and your mortgage may be considerably lower. In the pre retirement stage of your life, it is important to reassess the amount you are paying for your insurance. You should contact your life insurance provider and look at your options in regards to reducing the amount of cover you have or switch to a more affordable and simplified policy that still offers adequate cover.
- Funeral insurance can be a simple option for those looking to cover the final expenses that may arise in the event of their death. Cover is usually available to a maximum of $30,000 and can be used to cover any small debt, legal expenses and funeral costs.
Life insurance and retirement (65+)
This is the life stage that people spend their entire lives building to. This is hopefully a time of reduced financial obligations. Many people in this life stage have a large chunk of their mortgage paid and hopefully have a healthy balance in their superannuation. After years balancing the costs associated with their children, trying to reduce their debt and put money away for retirement, they have made it.
However, their need for financial protection is still very real. Health and insurance is important because of the increased risk of illness and injury that comes with age.
Reasons why people in this life stage may consider cover include:
- Maintaining cashflow
- Debt reduction
- Paying off the last of their mortgage
- Cost of living
- Maintaining savings for retirement
- Travel expenses
- Maintaining lifestyle
- Inheritance tax mitigation
- Aged care planning
- Estate planning
Cover Worth Considering
Term Life Insurance
- At this life stage, most insurances that you have purchased over the year can be dialed back. Just like with pre-retirement, life insurance can be renegotiated in order to reduce premiums and provide a more suitable level of cover.
- Estate planning allows you to nominate what happens to your possessions once you’re gone. It also allows you to nominate what should happen in specific events and circumstances.
Many of the cover options listed previously are only able to be taken out prior to 65 years of age. If you already have one of these cover options in place, while you may not have the same level as cover prior to your 65th birthday you may wish to continue the cover depending on your current financial situation and needs.