How do I choose the right life insurance policy?
It is important that you carefully choose the right life insurance cover to adequately protect your loved ones from financial hardship, should you unexpectedly pass away and leave behind significant financial obligations to cover. Of course life insurance won't bring you back but it can give your family the financial security you would have provided.
Regardless of whether it is just yourself and your partner, or if you have a family of youngsters, you will have a person, or people, who are dependent on you financially. It is a sad fact that many families have experienced great hardship after the main breadwinner has passed away and left significant debt for their family to manage. This could mean the family home having to be sold along with the car or your spouse having to take on extra work to manage the ongoing living expenses. Nobody wants to leave a legacy such as this, but it does happen all too frequently. There is one way it can be avoided and that is to ensure you have sufficient life insurance.
Steps to compare policies you find
The purchase of adequate life insurance need not be as big a hassle as many people think it is. One key reason for Australia's current underinsurance crisis is that people simply feel overwhelmed and confused by the different types of cover available and what they actually need to consider to give their family adequate cover. This article will offer some key steps to help you determine an adequate level of cover to protect you and your family.
Know what you need your life insurance cover for
If you are single, the cover you need will be sufficient to pay your bills, any outstanding mortgage debt, personal debt and coverage for your funeral costs. Term life insurance provides coverage for a pre-determined amount of time and you can choose the period of coverage that suits your situation and budget.
If you are married and have children, you will need extra cover and at this point of time, you may have accumulated larger debts, either short-term or long-term. If something was to happen to you and you are the main income earner of the family, you will need life insurance coverage that will be sufficient to meet your family's financial commitments. This is also best obtained with a term insurance.
Some common expenses that life insurance can help cover include;
- Mortgage debt
- Other personal debt - car loan, personal loan
- Legal expenses that may arise following death
- Funeral expenses
- Education expenses
- Home duties that policyholder managed
- Everyday living expenses - food, clothing, transport, maintenance, entertainment
Consider other types of cover
Many providers will allow you to bundle other types of cover to your life insurance for an additional premium loading. This ability to tailor your cover can mean that you have adequate "living insurance" for events where you may be forced out of work either temporarily or permanently. Other types of cover to consider bundling to your life insurance policy include;
- Trauma insurance: Trauma insurance will provide a lump sum benefit payment if the policyholder suffers a medical condition covered under their policy. Some providers will offer cover for up to 50 different conditions including stroke, cancer or heart attack. The lump sum benefit can be used as the policyholder wishes, however it is generally used to cover costs of medical treatment and ongoing living costs as they are forced out of work.
- TPD insurance: TPD insurance provides a lump sum or ongoing benefit if the insured suffers partial or total disablement and are unable to work to their full capacity or ever again. Each insurer will have different definitions for disablement so it is crucial that applicants are clear on when they will actually be eligible to claim.
- Income protection insurance: Income protection is generally purchased separately to life cover and provides an ongoing benefit of 75% of the insureds income if they are not able to work as a result of illness or injury. Income cover can offer a range of additional benefits to cover rehabilitation and nursing costs to ensure recovery is as swift as possible. Some policies will provide more than 75% of the insureds income if this additional amount is contributed to their superannuation.
If you are considering other types of insurance it is worth looking into the buy back feature. In most cases, if a benefit is paid for Trauma or TPD, the sum-insured for the life cover will be reduced by what is paid for the other type of cover. Buy back allows the policyholder to repurchase this amount of cover after a defined period of time to ensure they still have sufficient life cover in place.
Make regular checks on your life insurance policy to ensure it remains appropriate
You will need to review your life insurance regularly in order to make any alterations than may be needed following different life stages. Some typical events that may lead you to reassess the amount of cover you have in place include;
- Upgrade to a new home
- Change in occupation
- Birth of new child
- Death of beneficiary
Always look on your life insurance premiums as being a fixed expense in your budget that is not negotiable
Never consider your life insurance is an item that you can get rid off when money becomes tight because you believe you can take it out again when your cash flow improves. It will always be more expensive the older you get and you may also undergo some health problems as you age that may make insurance harder for you to obtain at the standard premium price. You wouldn't drop your house insurance or motor car insurance to free up your household income, so why should you even consider dropping your life insurance cover?
Consult and insurance consultant to help you find adequate cover
Speaking with an insurance adviser can help you find an insurance solution that closely matches your cover requirements. Insurance advisers can use their knowledge of the insurance market to;
- Help you compare multiple policy options at once
- Determine an adequate amount of cover
- Design your policy to include any other suitable cover options
- Find providers that will offer cover if you are potentially high risk
- Hunt out premium discounts