At this stage, life insurance is not necessary because you're just starting to build your assets, but it is useful to know about it anyway.
Most insurance companies have options that allow parents to insure their children from the age of two until they are 21 years old, so you might already be covered if you have not yet turned 21. This coverage provides support in the event that you:
- Suffer a traumatic event
- Contract a terminal illness
- Pass away
Some insurance companies will allow your parents to include you for free on their own policy, while some will charge an additional fee. However, it's worth the additional cost because these policies will cover any medical expenses and related costs for the above situations.
Life insurance through superannuation, which often comes at default through their employer's super, can be quite costly for teenagers. You can specifically opt out from a default insurance cover available from your employer's super, though it could mean that you won't be covered. But when you're a teenager and working minimal hours, the cost of insurance may not be worth the amount you're contributing into your superannuation.
What is life insurance?
Life insurance is an agreement between you and an insurance company whereby the latter promises to pay a beneficiary a certain amount of money if you die.
However, the agreement could also include other types of coverage, such as support for terminal or critical illness. You, as the policyholder, have to pay a premium, which can be done on a regular basis or as a lump sum. Some insurers also offer additional benefits such as the coverage of funeral expenses and other costs.
Types of life insurance
There are two main categories of life insurance, namely term life insurance or death cover and whole life insurance.
Term life insurance
Despite the fact that numerous insurers are pushing term life insurance nowadays because it costs less and they can offer a larger degree of coverage, the problem is that you can only take out such a policy for a certain term, which is where its name comes from.
Once the term is up, if you still need coverage, you will need to extend the term of the same policy but the premium will be higher. What's worse is that you will lose all the money you have paid as premiums up until the date the policy expired. The only exception is if you died while the policy was still active and the amount you were insured for has been paid out to the nominated persons.
Whole life insurance
Another option is whole life insurance, which is a much better approach while you are young. This is a policy that will last you a lifetime, as long as you keep up with covering the premiums. The latter will stay the same and there is no expiry date involved.
This is also a type of policy where part of the premium you pay is directed towards investments or savings. After a while, the part that was invested offers the policy a cash value of its own, which means that you will always be able to recover your premium payments if you have to give up the policy for any reason.
If you keep up with the premiums, you will always have insurance and the cost will remain the same, regardless of your age. This is why it is important to start so young. In fact, many experts recommend that you take out a whole life insurance policy of at least $50,000 when you are young and, as you gain more and more responsibilities throughout your life, you can keep increasing this amount with lower priced term insurance policies.
When it comes to health insurance, you have the option of relying solely on Medicare or turning to private health insurance. In terms of the latter, there are two types available, namely hospital policies that provide coverage for expenses related to going to hospital and general treatment policies that are designed to provide coverage for ancillary treatment, such as physiotherapy, dental treatment and more.
Note that if you are buying private health insurance for the first time or are upgrading your existing policy, you have to go through a waiting period before you can lodge a claim. During this period, you won't be eligible to receive benefits for some treatments or the amounts you receive will be lower for a while.
Also, it's important to shop around because different insurers offer different levels of coverage. You also need to take a close look at the policies because not all of them are comprehensive and some things may not be covered, which means you might have to pay some of the costs yourself.
A hospital policy is designed to assist in the coverage of expenses related to treatments performed in a hospital by your doctor as well as hospital expenses such as lodgings and theatre fees. Generally, you will find that if a medical service is listed on the Medicare Benefits Schedule, there is some type of private hospital insurance available to cover it.
Hospital policies are split into four main categories:
- Top private hospital cover. This must offer coverage on all service where Medicare pays benefits.
- Medium Private Hospital Cover. There are certain exclusions or restrictions such as pregnancy and birth related services, cataract and eye lens procedures, joint replacements etc.
- Basic Private Hospital Cover. Which excludes or restricts certain services such as cardiac and cardiac related services, rehabilitation, palliative care and more.
- Public Hospital Cover. Provides coverage for default benefits for treatment in public hospitals only.
Insurers will generally offer a number of different policies for each of these categories, along with various levels of excess or co-payments.
General treatment cover
General treatment policies offer benefits for ancillary services, such as optical and dental treatment or physiotherapy. They are split up into three main categories, namely.
- Comprehensive coverage, which includes coverage for general dental, major dental, endodontic, orthodontic and optical treatment as well as physiotherapy, podiatry, psychology and non-Pharmaceuticals Benefits Scheme (PBS) pharmaceuticals
- Medium coverage must provide coverage for general dental, major dental, endodontic as well as any five of the following options: orthodontic, optical, non-PBS pharmaceuticals, physiotherapy, chiropractic, podiatry, psychology, hearing aids
- Basic coverage – every other policy.
Medicare vs private health insurance
Medicare is the foundation of the Australian health system and covers a wide range of health care expenses. However, you can opt to take out private health insurance, which gives you more choices regarding the coverage of services that Medicare does not cover. Some of the advantages of this approach include a shorter waiting period for elective surgery and a lower demand for public hospital beds.
The problem with Medicare is that, as a public patient, you don't have a choice in terms of the doctor treating you and you might not have a choice in terms of when you are admitted to hospital. However, you will be treated as a public patient, which means you won't have to pay anything. Note that even if you have private health insurance, you can still choose to be treated as a public patient.
Medicare also doesn't cover certain items, such as:
- Private patient hospital expenses, such as theatre fees or lodging
- Any medical or hospital expenses you incur while travelling overseas
- Medical and hospital services that are not a clinical necessary or surgical procedures solely for cosmetic purposes.
Note that if your earnings are above $90,000 as a single or $180,000 as a family and you opt not to take out private hospital health insurance, then you will have to pay a Medicare Levy Surcharge. The rebate and surcharge levels applicable from 1 April 2016 to 31 March 2017 are:
< Age 65
< Age 65
Medicare Levy Surcharge (MLS)
If you are under 18, you are considered a dependent and can be included on your parents' health insurance policy. Once you turn 18 and until the age of 24, you can still be on your parents' policy if the fund considers you a dependent, such as if you are a full-time student.
Even if you aren't considered a dependent, you might still be allowed to be on the policy but higher premiums will be charged, so you should first discuss it with the insurer to see how much it will cost you as it might be a better idea to get a separate policy for yourself.Back to top
A quick life insurance glossary
While we will be looking at the two main types of life insurance in a moment, it's important that you first understand a few related terms.
- Income protection. This is a type of cover that replaces up to 75% of the money you make if you can't work because you suffered injuries in an accident or fell ill. In some cases, you can get these benefits if you have to work fewer hours per week while you are in recovery.
- Total and permanent disability (TPD). This involves you being insured for various occupations. Thus, you could have coverage only for the occupation you are currently in or for any occupation.
- Premium. This is the amount of money you have to pay the insurance company to receive coverage. This amount is determined by a number of factors, including how old you are, the state of your health, where you live and more. Premiums can be paid on a regular basis or as a lump sum. The choice is yours how you decide to pay but note that some insurers offer discounts to those who pay their premiums as a lump sum.
- Waiting period. This is the period you have to be out of work for before you can start receiving benefits on a claim you lodge.
- Benefit period. This is the time frame for which you will receive benefits from your insurance policy and can vary from two to five years or up until you reach a certain age, like 65 or 75. Some policies will provide income protection coverage for the entire duration of your life, but the longer the period of protection, the higher the premium you will have to pay.
- WorkCover or worker's compensation. This is a policy that provides protection if you are seriously injured at work. You will be reimbursed for medical expenses and other related costs, including income protection if you are unable to work for a while.
- Exclusions. This represents any event or situation the insurer will not cover. For example, if you sustained injuries while practicing a professional sport, you might not be eligible for coverage.