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Why is life insurance important to have?

It's not fun to talk about but it's important to at least consider cover.

The thought of what happens to your family in the event of your death is not pleasant to have. Read the following words:

'Loss'

'Emotional grief'

'Their future way of life without you'

Confronting. So much so the thought alone leads many to neglect taking out cover and a key reason why Australian families are underinsured. But should we be so quick to dismiss life insurance?

Three potential pitfalls of not having cover

As one of the most under insured developed nations in the world, Australians need to be aware of the pitfalls of not having adequate life cover in place. Here are three possible scenarios you'd want to avoid:

  • Your family is unable to pay off a home loan and is forced to sell the house.
  • Your spouse is left to handle any ongoing debts you have.
  • Your children don't get the education they deserve.

Compare the cost of life insurance vs the real expenses of life

To get an idea of whether life insurance is worth it cost of cover vs the average costs* that may need to be covered if you're not around.

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Monthly cost of life insurance

As little as $23.48

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Average cost of raising a child

$297,000

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Average home loan size

$371,700

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Average credit card debt

$3,130


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Do Australian families have enough life insurance?

While life cover through superannuation has help bridge this underinsurance gap, people need to be aware that this is only a default level of cover and to assess if the cover their super is enough to provide financial security if they were to pass away. A 2015 report from Rice Warner showed that:

  • Typical default cover for young families is approximately 30% of what they actually require
  • Typical default cover for those with no dependents is 60% of what they actually require

When it comes to life insurance, you won't have a second chance to get a policy if you die and that's why it's worth reviewing your cover options.

Are our priorities correct?

The majority of people insure their car but only a small amount insure their life or income (note: life insurance brands offer income protection as a product).

Meanwhile around 20% of mortgage defaults are in fact due to an injury or accident to someone in the household1.

So what do you value more?

A car

Cost of a car

$50,000

How much will it cost in 5 years time?

It's likely to depreciate.

Cost of insuring a car

$97 a month

Your income + ability to pay obligations

Your current earnings

Let's say $72,000 per year

Costs to consider (average):

Mortgage size: $371,700. Cost of raising a child: $297,000.

Cost of insuring income

$86.66 per month or 2.8% of your income2.

  1. Based on a Mazda CX-5 using the average cost between 5 insurers
  2. Monthly cost is based on the average cost of premiums available through finder.com.au's quote engine.

Is life insurance a rip-off? Read this analogy.

When it comes buying something insurance people often see it has loosing money for something that is unlikely to happen. This all changes when something actually does happen.

Let's say you crashed your car. You'll now start seeing car insurance as paying now for some potential help in the future, should you get in a car accident.

When it comes to life insurance, you won't have a second chance to get a policy if you die and that's why it's worth reviewing your cover options.

parents-dont-need-life-insurance (1)

What are the costs of not having cover in place?

The loss of a families main breadwinner can have a significant impact on the surviving families life moving forward e.g the total cost of education fees can add up to a significant figure. Even if you are a stay at home parent performing ongoing home duties you'll also need to consider the cost of a housekeeper to replace you.

Common costs to cover

  • Mortgage, credit card and other personal debt
  • Medical care if diagnosed with a terminal illness
  • Funeral expenses
  • Taxes
  • Education expenses
  • Bills
  • Food
  • Groceries

Cost to cover if you have dependants

People without financial dependents in place can still leave considerable financial debt to be covered by immediate friends and family. This may include;

  • Funeral expenses
  • Mortgage debt, credit card debt, other debt remaining on personal loans
  • HECS (university) debt owing on studies completed.

TPD and Trauma cover may be more suitable to people in this situation. These policies will offer protection if they are forced to take time out of work due to serious illness or injury.

Life insurance in real life: A safety net following a tragic loss

Neal Frankle

Owner of Wealth Resources Group and the blog wealthpilgrim.com, Neal Frankle is what many would consider an inspiration. Frankle has overcome tragedy and many boundaries to neal-frankle-profileachieve financial and spiritual happiness.

Via his blog the WealthPilgrim, Frankle shares a personal story with his readers to help them achieve their own personal and financial goals. From a young age, Neal recognised the importance of financial security in living a life of happiness and free of stress . After the passing of his parents at the age of 17, Frankle found himself homeless and broke until he received a death benefit from a life insurance policy.

So how did Neal Frankle turn his life around and become the owner of a successful financial company and a renowned blog? Neal sat down with finder.com.au writer William Eve to tell his story.

Neal Frankle is a Certified Financial Planner working with people who want to make smart decisions about their money -- so they don’t have to worry. He grew up with very limited resources and knows what it means to work hard for money. He believes your money should allow you to achieve those things that you hold most important in life.

Types of life insurance to consider

In addition to life cover, there are other forms of insurance to consider to ensure the right level of protection is in place. These types of "living insurance" can offer support if the policyholder is forced to take time out of work after suffering certain events.

Income Protection

  • Provides an ongoing monthly benefit of 75% of the policyholders regular income if they are forced to take time out of work due to serious illness or injury
  • Additional benefits can provide support to cover rehabilitation expenses that may be incurred as the insured recovers.
  • Additional benefits can provide support to cover expenses of professional nursing care if required.

Trauma Insurance

  • Provides a lump sum payment to cover costs incurred if the policyholder is to suffer a trauma condition as specified by the provider. This may include stroke, cancer or open heart surgery. These conditions will vary from provider to provider.
  • Trauma cover can often be bundled into the policyholders life cover.

Total Permanent Disability Insurance

  • Provides a lump sum benefit if policyholder is forced out of work due to disablement.
  • Definitions of "disablement" varies greatly between providers. Essential for applicants to review when a payment is provided.

Steps to find suitable cover for your situation

One major determent of people taking out cover is the price. Many feel they simply do not have enough in their budget to keep on top of ongoing premium payments. Here are some tips to make your cover more affordable.

  • Research: Take the time to research the different options available. There are hundreds of different products on the market offering different levels of cover at different prices. Find cover with features and benefits relevant to your situation and ensure the premium payments reflect what is provided.
  • Consolidate life cover in super: You may already have some life cover held in different super plans. Consolidating this cover into one fund can help you save a considerable amount in fees.
  • Joint life cover options: Some providers will offer joint-policy discounts if you are looking to take out cover for your spouse.
  • Speak with an insurance consultant: An insurance consultant can compare hundreds of different policy options on the market for you and help you find premium discounts.

Compare Life insurance quotes from these direct brands

Name Product Maximum cover Maximum Entry Age Minimum Sum Insured Guaranteed Future Insurability Expiry Age Short Description
$15,000,000
69
$0
Yes
99
Get a quote for up to $15 million in life insurance cover. Cover can be tailored to meet your personal needs.
$2,000,000
74
$100,000
Yes
99
Join Qantas Life Protect and earn up to 100,000 Qantas points. T&CS apply.
$1,000,000
64
$100,000
No
No expiry age as long as premiums are paid
Get a refund of 10% of the premiums you've paid (in the first 12 months) with The Real Reward™. Take out cover today and you could get a bonus $100 Gift Card.
$1,500,000
65
$3,000
No
80
Flexible cover options to suit your budget. New eligible customers can receive 25,000 Velocity Points. Ends 31 Aug 2018. Min monthly premium and T&Cs apply.
$1,500,000
69
$50,000
Yes
99
Receive a 10% discount on the second person when two applications are submitted at the same time, and both policies are issued.
$2,000,000
59
$50,000
Yes
99
Get flexible life insurance up to the sum of $2,000,000.
$1,500,000
69
$0
Yes
99
A simple life insurance product that can offer up to $1,500,000 in a lump sum payment on death or diagnosis of terminal illness.

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Coverage is the amount of money that you will be paid in the event of a claim. An insurance consultant can help you determine an appropriate amount. Calculator
Provides a lump sum payment if you become totally and permanently disabled and are unable to return to work.
Provides a lump sum payment if you suffer a serious medical condition. Cover can be taken out for 40-60 medical conditions depending on the policy you choose.
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  1. Mortgage default in Australia: nature, causes and social and economic Impacts

Richard Laycock

Richard is the Insurance Editor at finder, and has been wrangling insurance Product Disclosure Statements for the last 4 years. When he’s not helping Aussies make sense of the fine print, he can be found testing the quality of Aperol Spritzes in his new found home of New York. Richard studied Journalism at Macquarie University and The Missouri School of Journalism, and has a Tier 1 certification in General Advice for Life Insurance. He has also been published in CSO Australia and Dynamic Business.

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