Life insurance is one of those financial topics many people know is important, yet often put off thinking about.
It can be uncomfortable to consider what might happen if you were no longer around, became seriously ill or were unable to work for an extended period.
But life insurance is not really about you. It is about protecting the people who depend on you and helping provide financial stability when life takes an unexpected turn.
What does life insurance actually protect?
For most households, income supports almost everything: mortgage repayments, rent, groceries, school fees, utilities, holidays, debt repayments and everyday living expenses.
If a major illness, injury or death suddenly removes that income, the financial consequences can be significant.
Depending on your circumstances, personal insurance may include a combination of:
Life cover– generally provides a lump sum payment if the insured person dies or, depending on the policy, is diagnosed with a terminal illness.
Total and Permanent Disability (TPD) insurance– may provide a lump sum if you become permanently disabled and meet the policy’s definition.
Trauma or critical illness insurance– can provide financial support following the diagnosis of certain serious medical conditions covered by the policy.
Income protection insurance– may replace part of your income if illness or injury prevents you from working for a period of time.
Each type of cover serves a different purpose, which is why simply having “some insurance” does not necessarily mean you are adequately protected.
How much cover is enough?
This is where things become more complicated.
There is no universal amount of insurance that suits everyone. Someone with young children, a large mortgage and one primary income may have very different insurance needs from someone whose children have left home and whose debts are relatively small.
When considering life insurance, it may be necessary to think about outstanding debts, future household expenses, education costs, replacement income, funeral expenses and the financial resources your family already has available.
The right level of insurance today may also be very different from what you need in five or ten years.
Don’t forget insurance inside superannuation
Many Australians may already have some life and disability insurance through their superannuation fund.
While this can provide valuable protection, it is important to understand exactly what you have.
How much would be paid? What are the definitions and exclusions? Will the cover remain appropriate if you change jobs or super funds? Is the premium reducing your retirement savings?
Having insurance through super does not automatically mean the level or type of cover is suitable for your circumstances.
Cheap insurance isn’t always better insurance
Price is naturally important, but insurance should not be assessed on premium alone.
Policy definitions, waiting periods, benefit periods, exclusions, occupation classifications, ownership structures and claims conditions can all make a considerable difference.
Two policies that appear similar on the surface may respond very differently when a claim is made.
The real value of insurance becomes apparent when you actually need it.
Life changes – and your insurance should too
Insurance should not simply be arranged once and forgotten.
Marriage, divorce, children, buying a home, starting a business, receiving an inheritance, changing employment or approaching retirement can all alter your insurance needs.
Even reducing debt over time may mean the amount of cover you require changes.
A regular review can help identify unnecessary cover, potential gaps and opportunities to restructure policies as circumstances evolve.
Why professional advice matters
Personal insurance can involve much more than choosing a dollar amount and paying a premium.
A qualified Financial Adviser can help assess your financial position, identify the risks your household faces, consider existing insurance and determine what types and levels of protection may be appropriate.
Advice can also help you understand the fine print before a claim ever needs to be made.
Nobody likes thinking about death, disability or serious illness. But having appropriate insurance can mean that, during an already difficult time, your family has one less major issue to worry about.
Life insurance cannot prevent the unexpected.
It can, however, help protect the financial future of the people who matter most.
If this article has inspired you to think about your unique situation and, more importantly, what you and your family are going through right now, please get in touch with your advice professional.
This information does not consider any person’s objectives, financial situation, or needs. Before making a decision, you should consider whether it is appropriate in light of your particular objectives, financial situation, or needs.
(Feedsy Exclusive)
Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Please consider whether the information is appropriate to your circumstance before acting on it and, where appropriate, seek professional advice.