When you take out life insurance, you get to choose how much you want your policy to pay out. Believe it or not, a $1 million life insurance policy can be very affordable. The only catch? It might not be enough. Read on to find out the costs and if it's the right option for you.
Can I get a $1 million life insurance policy in Australia?
Yes. When you take out a policy, you can choose exactly how much you want your life insurance to pay out when you pass away. You basically want your policy to pay for all the things your salary was covering. So that means it should be enough to cover debts like your mortgage, everyday living expenses and for your loved ones to continue their current standard of living.
To work out if a $1 million life insurance policy is enough for you, your insurer will take into account two major factors: your income and your age. As a good indication, most recommend that your life insurance lump sum is around 6 to 10 times the amount of your yearly salary. So if you earn $100,000 a year, then a $1 million payout may be enough to cover you.
But you also need to take into account your age. The younger you are, the larger a payout you're likely to need as most people typically earn more as they get older and with that comes increased financial obligations. To work out if $1 million is the right amount, multiply your annual salary by the number of years you have left until retirement.
How much is a million dollar policy?
Finder researched eight Australian direct brands to compare life insurance quotes. Below are the average monthly costs for a non-smoker with no medical conditions.
Pros and cons of a $1 million life insurance policy
So you know that you can get a policy, but is it right for you? Check out the pros and cons below.
It's affordable. Factors such as your health condition, age and occupation determine exactly how much you'll pay, but as an indication, you should be able to find cover for around $30 to $40 a month for a $1 million life insurance policy.
It may not be enough. $1 million seems like a lot, but it's often not enough if you want to cover all your expenses. You should assess everything that you pay for now and work out how long it will take on your current income to pay all of that off. This should include obvious expenses like your mortgage and any dependents you have but also school fees, other loans you have and funeral expenses.
You might need to undergo a health check. In some cases, life insurers ask you to complete a health check before agreeing to cover you. If you have any underlying health issues, this can make your premiums more expensive.
Other options available with life insurance
Still not sure if a $1 million policy is for you? Here are some other options available with life insurance.
Trauma. This gives you a lump sum if you're diagnosed with a specific critical illness like cancer, meningitis or suffer a stroke. It's often included with a life insurance (death cover) policy.
TPD. Total and permanent disability gives you a lump sum if you become permanently disabled because of an injury or illness. It often pays out a smaller lump sum if you're only partially disabled.
Income protection. If you want financial protection should you suffer an injury or illness and need to take some time off work, then income protection is another policy worth investing in. It can pay up to 85% of your current income.
Personal accident. This pays you or your beneficiaries a lump sum if you're injured or killed but not for illnesses. As a result, it's a little cheaper than a normal life insurance policy.
Funeral. Funeral cover can be included in a life insurance policy but if you want, you can also buy it separately. Your premiums go towards paying for your funeral.
A $1 million life insurance policy might seem like more than enough to leave to your loved ones but before you buy, calculate your expenses properly. Take into consideration all your debts, loan repayments, funeral costs and other fees so you can be sure. If you need more, make sure you factor that in when buying life insurance.
Gary Hunter is a writer at Finder, specialising in insurance. He’s been writing about life, health, travel, home and pet insurance for over three years, has pored over hundreds of product disclosure statements and written more than 500 insurance articles. Gary is passionate about helping Aussies understand their insurance policies so that they can get better value for their money.
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