Many Australian families do not have enough life insurance to protect themselves and their families in times of need. Find out why it pays to be prepared.
As a society, we generally like to be prepared. We tend to consider a range of possible eventualities in our lives and like to feel that we have an adequate safety net if things go wrong. For example, we usually don’t travel without travel insurance, drive a car without car insurance or buy a house without home insurance. We invest in health insurance so we can protect our savings and experience maximum comfort if we were to fall ill.
Many of us fail to protect the very thing we treasure the most — our ability to maintain a comfortable and enjoyable lifestyle for ourselves and our families. For example, 83% of us insure our car while just 37% of us insure our income.
Yet many of us fail to protect the very thing we treasure the most — our ability to maintain a comfortable and enjoyable lifestyle for ourselves and our families. For example, 83% of us insure our car while just 37% of us insure our income1.
Year on year studies have shown that millions of Australians do not have enough life insurance cover to protect their loved ones in the event of an untimely death or debilitating illness or injury2. But it can pay to be prepared. Below we explain how you can be confident your family’s needs are covered.
Do I need life insurance?
Life insurance can provide ongoing financial security and stability for you and your loved ones by typically supplying a lump sum payment in the event of a number of scenarios, depending on your policy.
There are several types of life insurance, including:
- Life cover – the most basic cover, which provides a lump sum payment to your nominated beneficiaries in the event of your death
- Trauma cover – which provides a lump sum payment if you become seriously ill or injured
- Total and Permanent Disability (TPD) cover – which provides a lump sum payment if you become totally and permanently disabled.
The benefits from life insurance can help cover the costs of things like household expenses, education, mortgages and car payments if you were no longer around to provide for your family. Even if you’re not the breadwinner, a benefit could be put towards the substantial costs of everyday life such as cooking, laundry, cleaning and childcare, especially if you have a young family.
Am I prepared?
If something happened to you, would you and your family be able to sustain your current lifestyle? Most likely, the answer is no.
Studies have shown that just 42% of Australians have enough life cover – some up to $1 million – to enable their beneficiaries to sustain their current standard of living3.
You want your life insurance to be able to cover short-term, unexpected costs such as funeral or medical expenses, as well as longer-term plans to help your family get back on their feet, such as mortgage repayments, education costs and other living expenses.
How to be prepared
If you have life insurance cover – or you’re looking for a new policy – it’s a good idea to learn everything you can about your policy to know what is and isn’t covered. Benefits, limits and what’s covered can vary across different policies so learning these details means you won’t be unpleasantly surprised if you find out you’re not covered for certain circumstances after you’ve lodged a claim.
What circumstances are you protected for?
To begin, consider the various types of life insurance, including Total & Permanent Disability (TPD) Cover and Trauma Cover. Are you insured just in the event of your death, or does your policy include TPD or Trauma products to account for serious illnesses and injuries, or if you are left permanently disabled?
Have you disclosed all relevant personal details?
Have you informed your insurer of all personal circumstances that could affect your claim? If you fail to mention, for example, that you are a smoker, enjoy risky sports, or already suffer from a serious health problem, your policy may be cancelled, the amount you have been insured for may be reduced, or at the time of making a claim, your policy could be rejected entirely.
Do you know what’s covered?
Every life insurance policy has specific inclusions and exclusions, which are outlined in the policy documents and product disclosure statement (PDS).
For example, you may not be covered for pre-existing conditions, high-risk work or recreational activities unless your pay more in your premiums. As we’ve said, if you fail to disclose these details in advance, your claim might be denied.
Have your circumstances changed?
As your personal circumstances change, so will your life insurance priorities. If you get married, take out a new mortgage, or have another child, you may want to ensure your life insurance policy remains in line with your current family needs.
It’s worth regularly checking your insurance policy when your circumstances change and making sure you’re happy with your level of cover. If you need to increase or decrease your cover you can usually apply to adjust most life insurance policies.
Have you informed your beneficiaries?
Another important thing you may want to consider is to let your beneficiaries know the details of your policy. If so, you’ll probably want to tell them where you keep the policy documents – if you have a digital version, you could email a copy to them. It even pays to send them a copy of the product disclosure statement (PDS).
Am I protected with my super life insurance?
Unless you’ve removed it from your superannuation, most super fund accounts include life insurance cover. Many Australians believe this cover is sufficient. However, it is usually a basic level of cover that may not meet your family’s needs4.
For a start, the standard amount of cover in your super is minimal, unlikely to be enough to provide for a family of four with a mortgage. The cover may also not be underwritten and as such will need to be at the time of claim. In the worst case scenario this could result in the cover not being paid if you had a pre-existing condition at the time of taking out the cover, whether you knew it or not.
http://www.lifewise.org.au/life-insurance http://www.merideon.com.au/downloads/Lifewise-NATSEM%20Report%20Full.pdf https://www.choice.com.au/money/insurance/life/articles/life-insurance-how-much-do-i-need https://www.choice.com.au/money/insurance/life/buying-guides/life-insurance
This post was brought to you by Budget Direct Life Insurance