As a nation, Australia is worryingly under-insured and life insurance is no exception to this. A 2011 Lifewise/NATSEM Under-insurance survey found that a huge 95% of families didn’t have adequate life insurance, with most relying on the default amount offered through superannuation funds – which isn’t extensive enough for the needs of most families.
The Life Broker Life Insurance Report (2010) found that 50% of Australians wouldn’t have the means to cope financially if the main breadwinner were to die or couldn’t earn an income for at least three months. If you’re one of these families, life insurance can protect your loved ones and give them one less stress to worry about.
Why life insurance is important
With life insurance protection, you have the security of knowing that your loved ones will be able to cope financially if they can no longer count on your income. If you’re still relatively young and healthy, it’s easy to assume that you don’t need to worry about this – after all, who wants to think about their own mortality?
In reality though, you don’t have to be old or in poor health to die or become seriously ill so it’s definitely something that should be considered. Losing the main breadwinner’s earnings may have a devastating impact on your family’s ability to meet regular outgoings, make mortgage repayments, pay for education and childcare expenses and generally maintain your current standard of living. Many families also don’t have adequate superannuation, investments and other insurance to help them cope, so if critical illness, disability or death happens, insufficient life insurance can be devastating.
How life insurance works
Generally speaking, life insurance will provide a lump sum payment for beneficiaries in the following situations:
- Death of the policyholder. Life cover (also known as life insurance or death cover) pays a fixed amount to beneficiaries if the policyholder dies.
- Permanent disability. Total and Permanent Disability (TPD) insurance covers the costs of rehabilitation and helps beneficiaries meet the costs of debt repayments and future living expenses if the policyholder becomes totally and permanently disabled. This may be offered alongside life cover. Some insurance providers may also offer separate insurance to cover lost earnings if you become permanently disabled which leaves you unable to work.
- Critical illness. Also known as critical illness cover or recovery insurance, Trauma Cover offers protection if the policyholder is diagnosed with a specific illness or injury. This commonly covers conditions such as heart attacks, strokes and cancer.
How much life insurance cover do you need?
This very much depends on your personal situation, but it’s useful to think about the following factors when you’re working out how much life insurance cover you will need.
- The expected costs of the main breadwinner’s funeral
- How much financial support will be needed for dependents to meet financial obligations and continue to enjoy the same standard of living
- How many years this financial support will need to last for
If you don’t currently have life insurance, have you stopped to think about how your family would cope financially if you were to become critically ill, develop a life-changing disability or die? Under-insurance is rife throughout Australia and many families would be financially crippled if the worst were to happen. If you suspect that your family wouldn’t have the means to survive without your income, life insurance may be a sensible way to protect them financially.
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