Term Life Insurance
The purchase of term life insurance is important to provide protection for your loved ones after you are gone. If you have a spouse, children, or any dependent relatives who count on your salary, term life insurance gives you the opportunity to protect these family members from hardship if you pass away unexpectedly.
Buying life insurance is an essential part of sound financial planning, but you need to make informed choices about what type of cover you need and what policy is the right one for you.
What is Term Life Insurance?
Term life insurance is also called death cover or term life insurance cover. This type of policy provides a set amount of money if the insured person passes away. The money, or death benefit, is given to the people you nominate or list as beneficiaries on your policy.
Term life insurance is available for purchase through most super funds, as well as through private insurance providers. Although super fund trustees are required by law to provide a minimum level of automatic insurance coverage (with premiums deducted from super contributions), this automatic coverage may be insufficient to provide for your family. In fact, life insurance through a superfund typically provides less than half the cover you actually need.
Purchasing a separate policy can allow you to ensure that those who you love do not experience a decline in their quality of life after you pass away.
Who Should Buy Term Life Insurance?
Anyone who has family members depending upon them should strongly consider the purchase of term life insurance. When you pass away, you are no longer bringing income into the home. Your family may not have enough to pay for everything that it would otherwise have been able to afford if you had not experienced an untimely death.
Term life insurance allows you to leave a lump sum of money behind that your family can use to meet their short-term and long-term needs. The money can be used to pay off mortgages and other debts and can be invested to generate returns that your family members can use to cover bills and costs that your salary used to pay.
If you are young and have no current dependents, it may still make sense for you to purchase life insurance in anticipation of the fact that you may have people depending upon you as you get older. If you purchase term life when you are young and in good health, you will start with a low standard premium rate on your contract. Term life cover is guaranteed renewable so can benefit from your lower premiums throughout your life. If you wait and purchase a policy when you are older, you may have already had a condition resulting in raised premiums unless that medical issue is excluded from coverage.
The Australian Securities and Investments Commission also advises buying cover for everyone in your household who makes a contribution. Insuring only the highest income earner is not sufficient because a spouse or household family member who works part time likely provides additional services at home like childcare. These services would have to be paid for if they were no longer provided for by a family member who passed away.
Why Do You Need Term Life Insurance?
Term life insurance makes it possible for your family to pay off debts and replace your income if you pass away. Your children’s current and future education costs can also be covered.
As many as 50 percent of all industry super fund members are under insured by $100,000 when it comes to life insurance according to Lifewise. If you do not purchase term life insurance, your family may not have enough money. Your children’s educational opportunities could be more limited, and your loved ones might have to move to a less expensive home or otherwise scale down their lives.
The life insurance industry pays out almost $10 million every working day in claims to beneficiaries of policies. This money buys peace of mind for you and financial security for those you love.
How Much Term Life Insurance Should You Buy?
The amount of term life insurance to buy varies depending upon your specific situation. If you have a higher salary, if your family has more substantial debt, or if you want to provide for a costly private education for your children, you will need to buy more coverage.
Lifewise recommends adding up all of your current and future financial obligations and subtracting existing available resources including savings and investments, life insurance you may already have, and survivors’ earnings. The difference between your obligations and the money coming in is equal to the amount of life insurance you require.
How Does Term Life Insurance Differ from Other Life Insurance Products?
Term life insurance is the only type of insurance that will pay a beneficiary if you pass away. In 1992, the Keating Labor government made superannuation compulsory. Under the new system, contributions to a super fund became mandatory. A super fund provides some term life insurance, although often not enough. When the change was made and superannuation was put into place, alternatives to term life insurance like whole life insurance effectively ceased to be available. This means if you want to buy life insurance, term life is not just your best choice but is your only choice.
Other types of insurance, like income protection and trauma protection, can provide for you if you become disabled, are unable to work, or experience severe permanent injuries. However, these types of policies are not targeted towards taking care of your survivors if you pass away. Only term life insurance policy can offer this protection.
What to Look for in a Term Life Insurance Policy?
Check your super fund to determine what life cover, if any, you currently have available to you. If you have life cover, you can determine if it is enough. It often is not. If you are not happy with the life cover offered by your super fund, you may have the opportunity to opt out.
Term life cover can be purchased from a private insurer. You will need to provide a duty of disclosure detailing any medical conditions or whether you currently use tobacco products. Your term life policy cost will be determined based on your disclosures and medical conditions. Be sure to look for a term life insurance policy that offers coverage at a cost that is comfortable for you, and that provides a large enough death benefit so you are confident your family is protected.
How to Compare or Evaluate Term Life Insurance Policies?
When you consider a policy from an insurer, consider the costs of the policy, the amount of coverage, and any limitations. Insurers are required to provide a product disclosure statement (PDS) to help you compare benefits. Look into coverage exclusions, if any. You should also consider whether your insurance premiums are tax deductible. Many premiums are, depending on the circumstances. This can lower the overall cost of purchasing a term life policy.
What Happens at the End of the Policy Term?
Term life insurance is guaranteed renewable. Even if you have become sick or now suffer from a serious medical problem, the insurer is still obligated to re-issue the policy when the term is done. As long as you continue to pay premiums, you can keep your term life policy active so your family will always be protected from financial hardship if something happens to you.