Life Insurance in Australia: A Brief Summary
Nobody can doubt the unpredictability of life. In order to ensure that your family is protected from financial hardship in the event of your death, disability, long-term sickness or injury, you need to have good financial planning that includes adequate life insurance.
Life insurance is pertinent especially if you have a number of outstanding debts like a mortgage or other personal loans that need to be paid off based on the sum insured outlined in the life insurance policy.
Life Insurance through Superannuation Funds Vs Independent Companies
Life insurance in Australia can be derived from many forms. One of them is through superannuation funds. According to the Investment and Financial Services Association, it’s estimated that 70 percent of all life insurance policies are bought through superannuation funds. It is advisable to check what kind of life insurance you have through your superannuation funds. If you are thinking of buying extra life insurance, you can do it through your super fund as it is cheaper than acquiring it through independent companies. However, there are several drawbacks that you should consider.
Things to Think About
Firstly, you have less cover than those that come with stand-alone policies because of lower premiums. In other words, you get what you pay for. Secondly, life insurance through super does not include trauma insurance (refer below) which can be a valuable part of any full protection plan for most people due to life’s unpredictability. Thirdly, benefit payments may be delayed because they are paid by the super trustee, rather than by the insurer directly.
On the flip side, you can enjoy tax deductible premiums as these premiums can be paid out of your super contributions. Also, the benefit payment is tax-free if paid to a financial dependant. Do take note however, that you will need to make sure you do not use up too much of your funds’ future potential. In addition, you get automatic acceptance by circumventing onerous paper work and you may get to save the hassle of completing a medical check.
So, if you are looking for more protection, there is nothing to stop you from the benefits of cover from both your super fund and an independent registered insurance company.
Insurance companies offer life insurance products that are accompanied by many different options and conditions. The broader the coverage is, the greater the cost. Make sure you know what kind of protection you really want and find out what is and isn’t covered in the policies you are considering to purchase. It’s a good idea to invest some time in shopping for the right insurance product.
The following are questions that may help you arrive at a decision:
What are the types of cover available? The types of cover available are as follows:
- Life Term Insurance
- TPD (Total and Permanent Disability)
- Trauma Cover
- Income Protection Insurance
Life Term Insurance – This is the main type of life insurance available in Australia. As the name suggests, life term insurance is offered for a set term, usually until the age of 99. Life term insurance premiums are paid either annually or monthly in exchange for life insurance protection. If you outlive your insurance, you may either discontinue the insurance, or pay a premium which will increase annually. On the other hand, if you do not outlive the insurance, the beneficiary will receive the payment allotted by the insurance.
TPD (Total and Permanent Disability Cover) – This covers you against an illness or injury which stops you from being able to function in daily life and thus deprive you from earning an income. TPD is usually withdrawn alongside life insurance, and for the same amount.
Trauma Cover – This offers a payout, should you suffer one of the serious medical conditions outlined in an insurance company’s product disclosure statement. This also includes a pay out on the diagnosis of one of the conditions specified by your insurance provider.
Income Protection Insurance – This is a monthly benefit that pays you up to 75% of your income and covers you for accidents, illnesses or major traumas. It covers you financially until you return to work.
How much life insurance coverage should I have?
The amount of life insurance coverage you need will depend on factors pertaining to the individual such as the amount of mortgage or personal debt you have, the age of your children if any, and the amount of income your family will need in your absence. As a rough guide, many financial advisors recommend that the sum insured for in your life insurance policy should be a minimum of ten times your annual salary.
How much do policies from life insurance companies cost?
The cost of life insurance policies differ from person to person. Life insurance companies will base standard premiums on the following factors:
- Age
- Smoking status
- Gender
In assessing your life insurance rates, a life insurance company may also ask for a medical assessment which is usually done at the expense of the life insurance company. On the contrary, life insurance companies who ask minimal questions and sell life insurance without medical assessment often have higher life insurance premiums. It is best to compare quotes from registered life insurance companies in Australia.
Don’t Forget Your Policy!
Life insurance should not be overlooked in the course of financial planning. Planning ahead and purchasing life insurance ensure not only financial security for your family in the event of unforeseen circumstances but also mental freedom and a clear conscience on your part knowing that your family will be well-cared for in the future. If you haven’t yet considered getting a life insurance, start acting now and secure a good premium with the right cover before it’s too late.