Contents

• Life Insurance Comparison in Australia
• What is Term Life Insurance
• What is Super Fund Life Insurance Policy
• How Do You Choose a Cover Amount
• How to Choose a Life Insurance Policy
• What Other Types of Life Insurance are there

Life Insurance Comparison in Australia

A life insurance policy, depending on your level of sum insured, can cover all of your expenses including your mortgage repayments, repayments for other debts such as credit cards and pay for the cost of your funeral. The policy will also provide your dependents and family with a lump sum payment, as well as taking care of your family’s future so your children can stay in school and see out a tertiary education.

There are many life insurance providers operating in Australia so it is important when you are shopping around for a policy that you know how to compare the different providers and the different types of policies. Most superannuation funds will also include a form of life insurance with your account, and now is the time to find out exactly what you’re covered for, to what value and under what circumstances – even though you may be automatically covered doesn’t mean you shouldn’t check for a better deal. The last thing you want is to be stuck with a plan with insufficient coverage. This guide will explore the different types of life insurance policies, show you how to get the best value for your money, and help you make sure you choose the policy which is right for you and your family’s needs.

What is Term Life Insurance?

Term life insurance is the most common type of cover and can be obtained from us and we ensure that we get you the most appropriate policy for you and your family. To secure term life insurance coverage you may need to undergo a health check, which may also include a doctor’s visit and a blood test to give a full picture of your health.

When you are comparing insurance policies it is also important to look at the features and inclusions, not just the payout amounts and the premiums. When comparing term life insurance policies to other forms of insurance such as those inside a super fund you can enjoy a wider range of features such as the ability to increase your insurance sum if your needs change – for example, you may have gotten married, started a family or bought a house and so your expenses and your dependents have now increased.

What is Super Fund Life Insurance Policy?

The life insurance policy included with your superannuation fund usually offers simple default insurance options because you are automatically enrolled when you join the fund, and the premium amount is deducted from your super account.

Super fund life insurance policies generally cover you for death, as well as total and permanent disability cover. Plus, since the application is automatic, you are not generally required to complete a health check. However, the level of cover is often low and if you want more inclusive coverage it can be a good idea to apply for additional coverage and take that health check.

This super fund insurance premium is paid from your pre-tax income, however, only financially dependent beneficiaries such as your partner and underage children will receive the death cover benefit tax free. If you are naming beneficiaries such as adult children, they may need to pay tax on their payout. Also, it is the super fund trustee who decides who receives the benefit and while you can nominate beneficiaries not all super funds will allow you to make this nomination binding.

Super fund life insurance also has a much lower expiry age, usually around 65 or 70 years old.

How Do You Choose a Cover Amount?

To avoid paying all those premiums for all those years only to find you haven’t left your family with enough to live comfortably on if you die, make sure you consider your circumstances when you choose a cover amount. The general rule of thumb in the insurance industry is to seek coverage for an amount 10 times your annual salary plus your mortgage, all credit card bills, personal and car loans, and funeral expenses. At the same time you need to consider how many dependents you have or don’t have, for example a young, single Australian with no children may not need as much life insurance protection, but would be better off insuring their income in case they become sick or can’t work.

To help you choose a cover amount, consider:

• The amount of your mortgage and other debts.
• Whether you have a spouse, children or other dependents.
• The age of your children and the costs which would be required for them to finish school and continue their education.
• Whether your dependents have special needs.
• Whether assets or other investments could provide some financial security by covering some costs after your death.
• Your current wage and how much you expect to earn in the future.
• The amount your family needs to maintain their current lifestyle.

As well as considering the fact that more people are taking on greater levels of debt, larger mortgages and having children later in life, when deciding on how much insurance you need, consider the value of home duties performed and whether you may want to cut back on full time work hours to spend more time with your children if you lose your partner. You may find that the level of cover for the person based at home is significantly higher than you expected.

How to Choose a Life Insurance Policy?

The premiums for life insurance policies are usually based on a range of factors including:

• Your age, as premiums can increase or decrease as you get older.
• Your gender as women typically live longer than men and so pay lower premiums.
• Whether you are a smoker.
• Your job and its level of risk, for example a construction worker can pay higher premiums than an office worker.
• Your general health.
• Any pre=existing conditions.
• Genetics tests you’ve had, as these may show you are more likely to develop a certain condition.
• Trailing commissions which are usually paid to a financial planner or broker who organises your life insurance policy. These are paid from your premiums and can be as much as 33% of the amount.

You can also choose when you want your insurance premiums to be more affordable by choosing either stepped or level premiums.

Stepped premiums start out as very affordable but increase each year. This can make stepped premiums very expensive as you age because while premiums may decrease when you are in your 20s, the premiums can increase by 3% in your 30s to as much as 15% each year you are in your 60s.

Level premiums stay the same for the entire time you hold your life insurance policy so you can plan and budget for the cost into the future. For example, while for $500,000 worth of life insurance for a 35 year old male would be paying more in level premiums for the first 10 years of the policy, the premiums are actually cheaper after that time when compared to the stepped premiums which have been progressively increasing.

However, most life insurance policies with level premiums will also implement stepped premiums once you are over 65 years old.

How to Choose a Life Insurance Policy

To make sure you’re getting the right life insurance policy for your needs, there are a few questions you should ask your broker or insurance provider before you sign:

• Find out exactly what is covered. Make sure you are covered if you die due to an illness, as well as from accidental causes. Also, suicide is generally not covered for the first 13 months.
• Know how much will be paid for a claim. Clarify how much you will be paid as well as the conditions of payment, for example will the claim be paid if you are diagnosed with a terminal illness?
• The cost of the premiums. Knowing how much you will be paying now and into the future allows you to budget, as well as decide whether a level premium or a stepped premium is better for you depending on your age, and how your financial circumstances are likely to change in the future.
• How can the cover amount be increased? If your circumstances do change and you feel you need a higher amount of cover because you have taken on a larger mortgage or started a family, find out whether you need to complete a new health check.
• Switching and transferring policies. If you already have a life insurance policy and you want to switch to a new provider, you may not need to undergo another health check if your old insurer assessed your health within the last five years. Also make sure you cancel your old insurance policy only after your new policy has been accepted.

What Other Types of Life Insurance are there?

The term LIFE INSURANCE is often used as the generic term for both death and living cover, and there are actually four important ways life insurance policies differ:

• Death cover. A life insurance policy which includes death cover pays a lump sum amount to beneficiaries you have nominated, such as your partner and children when you die. Most death cover policies are term insurance.
• Total and permanent disability. Pays a lump sum amount if you are permanently disable and unable to return to work. Often self inflicted injuries and war injuries are excluded.
• Income protection. Can pay up to 75% of your income if you are temporarily unable to work because of illness or injury. The length of time you can receive these payments will depend on the level of cover you have chosen; often you can choose two years coverage, five years coverage or up to the age of 60 or 65. There may also be waiting periods which apply before the cover payments begin.
• Trauma insurance. Covers critical or serious illness and pays a lump sum if you contract a certain illness as specified in the policy. These policies typically cover up to 30 conditions, most commonly cancer, stroke and heart attack.