A life insurance policy provides coverage for the financial impacts on your family and loved ones due to your death or terminal illness.

Life insurance cover is fairly standard between insurers, however there can be minor differences that are worth researching to ensure you are obtaining the right coverage for you and your family.

What Does Life Insurance Cover?

A term life insurance policy will cover you for death as well as diagnosis of a terminal illness.  The definition of a terminal illness can vary between insurers, but generally it is an illness which leaves you with a life expectancy of twelve months or less.

Most life insurance policies also provide coverage for suicide, but only where the policy has been held for at least thirteen months.  It is important to check suicide coverage with the insurer, as some of the cheaper policies do not include this cover.

Optional Extra Cover

Some life insurance policies include additional or optional covers.  A popular inclusion is accident insurance, which can provide additional coverage for accidental death or injury.

Another popular inclusion is the financial planning benefit, where some insurance companies will include bonus coverage in the life insurance payout to cover the costs of obtaining financial advice to help decide the best way to use the insurance proceeds.

What Expenses Can Life Insurance Cover?

The funds from a life insurance policy are released as cash, and there are no restrictions over how your beneficiaries use the proceeds.

Although there are no formal restrictions, the proceeds from life insurance policies will typically be used for very similar things.

Common uses include repaying debts and mortgages, covering funeral expenses and providing an ongoing income for the surviving family members.  Other uses can include private schooling and university fees for children.

In some cases a life insurance policy will be sufficient to provide ongoing investment income to the family in perpetuity, whilst in other cases the policy will simply provide a small financial buffer to see the family through the period immediately following your death.

Having Enough Life Insurance

Making the initial decision to take out life insurance is certainly a major step in the right direction, but it is also important to ensure that you have sufficient coverage in place to meet you and your family’s needs and objectives.

The first priority in most cases is to clear all debts and mortgages, as this can be a major release of financial stress for your family during an already very stressful time.  For this reason your life insurance coverage should be at least sufficient to repay all of your debts in full.

Most people will also want to ensure their family are looked after financially in their absence, especially if they are the sole or main income earner.  Your life insurance should therefore provide sufficient coverage to replace your income for a period of time that you are comfortable with.

Your life insurance coverage should also be sufficient to meet any other expenses that you wish to cover.  Immediately this could include your funeral expenses, and later you could also be looking at education expenses for your children.

Whatever level of life insurance coverage you opt for, the most important part is that it meets your needs and objectives whilst featuring a premium that is affordable for you.