Everyone has different markers that herald their entrance into “real” adulthood. For some it’s high school graduation, and for others it’s university graduation. Some don’t feel like “real” adults until they’re renting their own place, but another person has to buy a home to feel independent. Getting married and having children are other common moments of realizing that you’ve arrived in the adult world. What about getting life insurance?
Do you really know what life insurance is and does? “It’s insurance for your… life,” you say. But are you fully informed on how it works, when it can be used and what it can be used for? Here are the basics on what life insurance is and, just as importantly, how to use it.
What is life insurance?
Life cover is an insurance policy that you purchase to pay out money to your family in the event of your injury, illness or death. The policy should provide enough to support your standard of living and allow your family to continue living life normally. This means that if you are the primary breadwinner of your home and something happens to you, your life insurance should allow your family to pay funeral costs, stay in your house, go to the same schools, and otherwise keep life as ‘normal’ as possible.
Why should I have it?
Well, not every person necessarily needs life insurance. But if you are the primary breadwinner in a family with children, looking into life insurance may be a good idea. A good rule of thumb is that if someone’s quality of life depends on your income (your children, spouse, dependent parent, etc) then it may be work considering life insurance. The same goes for someone with debts or expenses that they don’t want their loved ones to be asked to pay, or someone who doesn’t want to leave funeral expenses to family members who can’t afford them.
Do I have life insurance already?
You might. You may already have insurance through your super fund, and that’s a good place to start. Find out what your life coverage is, since it may or may not be enough. Just having a policy doesn’t necessarily mean you’re fully covered; your benefits under the policy need to be enough to provide for your family if they’re to fulfill their purpose. Also, check with your employer to see if you already have life insurance in place through them.
How do I, or my family, use life insurance if the worst happens?
To keep a life insurance policy, you’ll pay a set premium, monthly or annually, to keep your policy in place, just like other forms of insurance. Each insurance provider has their own claims process if you should need to file one. Then, depending on your policy, your family will receive a monthly payout or a lump sum if they ever need to make a claim.
Why do I have to answer health questions on the application?
The insurance company has to assess the amount of risk you present. If you’re young, active and unattached, you present very little risk; it’s another story if you’re a chain-smoking 90 year-old. It is vital, though, to answer all the questions honestly. Yes, you may have to pay a higher premium if you admit you smoke, for example; but if you lie, your insurer has the right to refuse your claims in the future. If your insurance is through a super fund or employer, you probably won’t have to fill out an application at all. In this case, your policy is a group policy, and the insurer spreads the risk of claims over all the people insured.
Now that you have the basics of life insurance down, it’s time to decide if you should have a policy and to figure out how much coverage you may need. You’ll find lots more useful information here on Life Insurance Comparison.
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