Life insurance is cover that pays out to a beneficiary in the even of a death. Life Insurance can relive financial stress in your absence by providing sufficient finances to help your family pay bills, manage mortgage repayments, and provide general living expenses. Often also called ‘Death Cover’, a life insurance policy will will pay to a nominated beneficiary, or if one is not determined, it will be assigned to the super trustee or your estate agent, and they will determine where the funds are paid.
Life insurance may also come with ‘Terminal Illness Cover’. This insurance covers various expenses if you are diagnosed with a terminal illness with a limited life expectancy.
How Much Cover is Required?
The payout in the event of your death is proportional to the size of the premium, and each of scheduled repayments. Those with more obligations will require more cover, and those with fewer dependencies or debt might need lesser cover. A discussion with your adviser will determine the type of cover that is most appropriate. It’s likely your adviser will balance your ‘Needs’ (mortgage payments, credit cards, school fees, debts, etc.) versus ‘Receives’, or the value of your super, the sale of property, leave balances, and general family support. The difference between these two figures is a good starting point to determine the amount of cover that might be required.
Paying for Life Cover Premiums
Premiums for life cover is generally made in one of two ways.
- Stepped premiums. Recalculated at each policy renewal, usually increasing each year based on the higher chance of a claim as you age.
- Level premiums. Charge a higher premium at the start of the policy, but changes to cost aren’t based on your age so increases happen more slowly over time.
The type of payment option determines the cost of the product over time.
Comparing Life Cover
There are dozens of life cover products in the market, each of which has various options, exclusions, and benefits. Our job is to pair you with a product that best suits your circumstances.
You should consider the following general attributes of any product.
- Benefits and policy features.
- Waiting periods before you can claim.
- Limits on cover.
- The cost of the premiums — now and in the future.
Each product will inherit its own payment schedule based on the inclusions. A less expensive policy may have more exclusions, or it may become more expensive in the future. The Product Disclosure Statement dictates the terms of the policy.
Disclosing Information to Your Insurer
You are a risk investment for an insurance agency, and you’re required to disclose any and all information that might impact upon their decision to cover you with TPD insurance. Failing to disclose important information may negate any claim that you might be paid in the future.
The basic questions an insurer will ask include the following (all will impact upon the cost of a premium):
- Your age
- Your job or occupation (each occupation includes a risk score)
- Your medical history
- Your family history, such as a history of disease
- Your lifestyle (for example, if you’re a smoker)
- Any high risk sports or hobbies (such as skydiving or horseback riding)
A medical examination may be required depending upon your circumstances and history. The outcome of the medical may impact the type of insurance each insurer will provide.
The result of your disclosure determines if the insurer will issue you with a policy, what the policy will cost you, and what terms and conditions are applied.