Car insurance. Home insurance. Health insurance. What about the most important thing you have: your life?
Life insurance protects your loved ones from financial hardship by providing them with money to pay for everyday living expenses, school fees, mortgage payments, and debts. However, life insurance offers other benefits aside from death benefits.
We’ll go through everything you need to know about life insurance, and hopefully, before the end, you will see the value of investing in this cover.
What Is Life Insurance?
A life insurance policy is an agreement between you and your life insurance provider that says if you die or are diagnosed with a terminal illness, the insurer will pay you or your beneficiary a lump sum payment.
Historically in Australia, life insurance came in two main types: term and permanent.
The sale of whole life insurance ceased in 1992 with the introduction of compulsory Australian superannuation. Life insurance within a superannuation fund has become the norm; however, it can have drawbacks.
Nowadays, Australians have access to excellent, cost-effective term life insurance that can meet all their risk protection needs throughout their life.
What Does Life Insurance Cover?
Life insurance (aka term life insurance, life cover, or death cover) pays out a lump sum to the insured person or their beneficiaries if the policyholder is diagnosed with a terminal illness or dies.
In most cases, terminal illness claims require a medical diagnosis of a life expectancy of fewer than 12 months to be approved and compensated.
Life insurance policies usually do not cover some risks, such as pre-existing medical conditions. Should a life insurer cover these risks, they’ll typically charge you a higher premium after asking lifestyle questions and getting your medical history.
Life insurance providers exclude suicide and attempted suicide injuries for the first 13 months following taking out or increasing cover.
It’s best to talk to your insurance company and read the Product Disclosure Statement to determine what your life insurance policy covers and its eligibility criteria for calculating life insurance premiums.
The life insurance industry, of course, isn’t limited to covering death and terminal illness. It also provides total and permanent disability (TPD) insurance, critical illness cover, and income protection insurance.
Total and Permanent Disability (TPD) Insurance
Returning to work may be difficult or impossible after sustaining a permanent illness or disability. Insurance against total and permanent disability can provide a safety net, helping to cover living expenses, medical bills, and rehabilitation expenses.
Should you be permanently disabled due to a sickness or accident, TPD insurance will pay you a lump sum benefit. However, each insurer defines total and permanent disability differently.
Own Occupation covers you if you can’t go back to the job you had before your disability. This life insurance costs more and is usually only offered outside of super.
Any Occupation covers you if you can never work again in any job that fits your education, training, or experience. The life insurance cost for this plan is cheaper, but the standard for determining eligibility is high, making it less likely to pay out.
According to TAL, some important details you need to know are what your TPD insurance may not cover.
Bear in mind that some TPD insurance benefits may not cover claims involving pre-existing conditions listed as exclusions on the insurance policy, or injuries from dangerous sports or activities.
Trauma Insurance or Critical Illness Cover
A serious illness or injury can make it difficult to continue working. Trauma insurance can help you and your family get through this challenging time and cover the costs of medical care and rehabilitation.
Trauma cover provides lump sum money if the life insured is diagnosed with a serious medical condition. It can cover things like cancer, a heart condition, or a stroke. It can also cover things like serious head injuries.
Depending on the insurance policy, pre-existing conditions listed on the policy may be excluded from cover. Also excluded are injuries that are self-inflicted or attempted suicide within 13 months of the policy’s purchase. In addition, trauma insurance does not cover mental health conditions.
Income protection insurance pays up to 70% of your salary for a pre-determined period if you are unable to work due to illness or injury.
Income protection policies may have exclusions for substance abuse, self-inflicted injury or inability to work due to pregnancy.
In general, income protection does not cover you if you lose your income due to being laid off or having your position terminated. Some insurers provide redundancy insurance, which covers those who lose their jobs, but it is less widely available than income protection insurance.
The Basics of Income Protection:
- Waiting periods: can span from 30 days to 2 years.
- Benefit Periods: can be a fixed-term of two or five years, or up to a specific age (maximum age is 65).
- Benefit Amount: you can apply for up to 70% of your pre-tax income – plus Super Guarantee which is paid directly to your nominated super fund.
Life Insurance Riders
Do you want more benefits from your life insurance? You might feel better if you add certain benefits to your life insurance.
A policy rider, often called ‘optional benefits’, is an add-on to your life insurance policy. A life insurance rider gives you additional benefits you can use in the future.
Life insurance products that stand alone, like TPD and trauma insurance, are also used as riders, while others are more specific.
With an accidental death rider, your beneficiaries, such as your spouse or children, will get claim proceeds if you pass away in an accident.
A guaranteed insurability rider increases your current death benefit without getting a new medical exam or qualifying again.
A waiver of premium rider kicks in if you can’t work for six months or more because of a serious disability. Your insurer will not charge you for your premiums for this period.
Child cover is a cash benefit you get if your child passes away or is diagnosed with a terminal illness.
An extra rehabilitation rider helps keep costs down if you need to keep going to rehab or need more sessions.
When setting up your policy, it helps to discuss life insurance policy riders with your insurance company or financial adviser.
Who Should Have Life Insurance?
Personal circumstances dictate if one needs life insurance or not. Generally, you should consider getting life insurance if you have people who depend on you for financial security or will not generate an income stream if you do not work.
You’re a Parent
Parents should recognise that their children may need life insurance benefits to cover daycare, school fees, and other living expenses.
Your Partner Depends on Your Income
After your death, your spouse may lose money if they depend on you financially (even if they work too). Life insurance covers shared bills, mortgages, and obligations.
You Have a Small Company
What would happen to your small business and employees if you got sick or died? Will your business survive? Your business partner can receive your life insurance benefit and continue to fund the expenses within your business.
Funds for Funeral
Funerals are immediate costs that can be expensive and strain your family at a difficult time. The Australian Seniors Cost of Death Report estimates that a funeral and burial cost up to $11,278 and a funeral and cremation cost up to $7,187.
How to Get Life Insurance Quotes
Many companies offer life insurance, but before you shop for life insurance and compare life insurance quotes, you need to be clear about what you want.
When evaluating your needs, you have to determine your financial goals for your life insurance. You also need to decide what type of life insurance best meets your financial requirements and ascertain whether any “riders” to the policy are required.
2. Compare Your Options
Comparing insurers based on how they would cover you might be challenging. Therefore for simplicity’s sake, many customers will compare based on insurance premiums and select from the least expensive premium rates.
Fortunately, you can get a preliminary quote for life insurance online. It’s a no-obligation service offered by life insurance companies, and you have the option to schedule a call with an insurance specialist.
To save yourself time and get peace of mind that you are making the right choices, you can also get in touch with a professional financial planner who specialises in insurance to get various quotes. Here is the common information you need to provide:
- Name and contact details
- Age and gender
- Occupation, employment type and income
- Smoker status
- Health information
3. Time for Application
Your financial adviser or life insurance representative will ask you a series of underwriting questions once you’ve decided on an insurer to get a thorough evaluation of your application.
This is when the insurer will assess your level of risk by asking health and lifestyle questions and determine if they require more information from you before accepting your request for life insurance.
4. Finalise Your Policy
The application process ends when the insurer accepts or rejects your application. They’ll explain the life insurance policy’s terms, and you’ll decide if you want it.
If you wish to proceed, give your payment information and beneficiaries. Once you accept the policy, you’re covered. The insurer will provide a policy copy and welcome pack within 10 business days.
Remember to meet your payment schedule; otherwise, your insurance could be cancelled.
Making an Insurance Claim: What to Do and How Long
1. Find the Policy Documents
Firstly, locate your policy documents as you will need to submit these with your claim forms. If you can’t locate your policy documents, let the insurer know when you first contact them about the claim.
2. Contact the Insurer
Although you can go to an insurer directly, it may be easier to speak to the person or company from which you bought the insurance. Ask how the claim process works and what forms you need to fill out. You can contact:
- The insurance company, if you bought insurance directly
- Your financial adviser first, if you bought insurance through them
- Your superannuation fund, if you’re insured through it
- Your employer, if you got insurance through your employer
3. File Your Claim
Once you’ve filled out the form, send it to your insurance company. If they need more information from you, they will let you know.
Depending on the type of insurance, you may need to provide the following:
- Medical reports and test results from your doctor
- Details about your job duties, including any physical requirements and the number of hours you work each week
- Payslips and tax returns, or financial statements if you are self-employed
- If someone has died, a death certificate or medical report stating the cause of death
Your insurance company may want to talk to your doctor about your claim or ask you to take an independent medical exam.
If you are still unable to work because of an illness or injury, you may need to check in regularly and fill out progress claim forms. A typical claim timeline takes several weeks to process. In more complicated cases, it can take months to make any payment.
Use the life insurance claims comparison tool to find out how long it typically takes your insurer to resolve a claim.
Make the Right Insurance Choices for You and Your Loved Ones with CCFPG
Buying life insurance is essential as it secures your family’s financial future. It is important to compare life insurance with different insurers and read the details of each policy carefully to ensure you have the right coverage at a competitive price.
If you need more information or insurance advice, turn to Central Coast Financial Planning Group. We are here to offer trusted financial advice to protect you and your family. Call us or book online to secure your complimentary first appointment with us today and learn how we can work together to achieve your financial freedom.
DISCLAIMER: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group Pty Ltd which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.