Let’s face it – life insurance is one of those subjects that most people don’t really like to talk about. As topics of conversation go, it’s right up there with gangrene, motor oil viscosity and earthworm genetics. After all, who wants to be thinking about death, disability, or how a family will cope if one of its members is suddenly gone?
The problem with all this avoidance, of course, is that it tends to result in a distinct lack of basic knowledge about how life insurance works, how it can benefit those who have it and why it’s so important. This information gap leads to a number of myths about life insurance. One of the most common is the assertion that “hey, I don’t need life insurance – I’m covered through my superannuation fund.”
Australia – land of the under-insured
The majority of Aussies have at least one super fund, and super fund trustees must, by law, provide a minimal level of insurance cover for their members automatically, with premiums typically deducted from your fund contributions. In some instances this cover may be totally adequate for your requirements, but in many cases it will not be exactly what you and your family need. Here are some sobering statistics from Lifewise.org1:
Life Insurance: 50% of Industry Super Fund members are under-insured by $100,000.
Total & Permanent Disability Insurance: 74% of Industry Super Fund members are under-insured for TPD Cover by $100,000.
On top of that, 37% of Industry Super Fund members consider life insurance to be a low priority in relation to other financial commitments.
Have you checked your super fund cover?
The sad fact is that many of us (a) don’t even realise we have some sort of life insurance already, or (b) know about our super insurance but have no idea what it actually covers, and/or (c) are unaware that we may be seriously under-insured when it comes to Life Cover. There’s a very simple solution to these issues, however: go check with your Super fund immediately and peruse the details of your Life Cover.
This information can normally be easily accessed from the fund website. Each Super fund offers different types and different amounts of cover, and each has its own set of limitations, terms and conditions as well. To know if your cover is adequate for you and your family’s current circumstances, get in and have a good look at what your superannuation Life Cover is providing.
Life insurance basics
Life insurance is designed to provide financial security to your loved ones if something happens to you. In its basic form it provides a Death Benefit to your named beneficiaries to help support them in your absence, so they can cope with their financial obligations. It is important to realise that while private health insurance can protect you against medical costs related to illness or injury, its responsibility ends with the medical side of things. It doesn’t cover you for ongoing bills or mounting debts that may result from your incapacitation. And depending on your cover, it may not even cover costs of rehabilitation or ongoing treatment, leaving you with substantial out-of-pocket expenses.
Types of Life Insurance Options
Aside from the standard Death Benefit, there are a number of other options available to help protect you and your family. Often these are classified as extra cover (‘Optional Benefits’) that you can choose to add to your existing policy at any time. One of the most important to consider is TPD (Total & Permanent Disability) Cover, which pays a lump sum benefit if you become permanently disabled due to injury or sickness, and can no longer manage your home or work in any occupation.
Another option is Trauma Cover, which is a benefit paid out for a specific serious illness or injury. This might include heart attack, stroke, coronary artery bypass surgery and specific types of cancer. Both TPD and Trauma Cover come with their own clearly defined terms, conditions, exclusions and limitations, so as with any kind of insurance, it’s vital to read the relevant Product Disclosure Statement for full details of exactly what’s covered. Some insurers also offer Children’s Cover, an additional benefit that applies if your children should pass away, be diagnosed with a terminal illness or suffer from a specific type of serious illness or injury.
According to John Brogden, CEO of the Financial Services Council, “the overwhelming majority of people that have insurance attached to their super are under-insured.”2 Don’t be one of them – take a good hard look at your own Super to see exactly where you stand.