Whether you’re independent or caring for a family of your own – it makes sense to protect your future with life insurance. But how do you know what you need? Here are 5 simple questions to ask, to help decide what life insurance cover you need.
1. What is life insurance?
Life insurance is a term for different types of personal insurance that pay a benefit when the unexpected happens.
Generally life insurance provides financial support for you and your loved ones if you:
- Pass away or become terminally ill
- Become totally and permanently disabled
- Suffer a serious illness or injury, like cancer or stroke
- Can’t work due to a serious illness or injury
2. What type of life insurance do I need?
There are different types of life insurance. Depending on your situation, you might want just one – or a combination. Here are the main types and what they do:
Life insurance – provides a lump sum benefit if you’re terminally ill or if you pass away.
- Total and Permanent Disablement (TPD) insurance – pays a lump sum if you become disabled and can no longer work.
- Trauma insurance – pays a lump sum if you’re diagnosed with an insured serious illness or injury.
- Income Protection insurance – will provide a regular monthly payment of up to 75% of your pre-disability income if you are unable to work due to illness or injury.
If you need a hand understanding and choosing the right protection for you, a qualified financial planner can help. They can review your situation and compare a range of products from various providers to help you find cover best suited to your individual circumstances and budget. Each plan is tailored so costs vary, but your financial planner will clearly explain the costs involved up front.
3. When do I need it?
As you move through life, your insurance needs may change. For example:
- As young professionals – you may only need to protect your lifestyle from the financial impact of an unexpected injury or illness – so you can keep paying the bills until you get back to work. You may also like to consider protecting against a serious illness or injury, including total and permanent disablement.
- As homeowners – if you’ve started taking on more debt, the impact of being out of work for a while – or forever – can have a much greater impact on your future. Life insurance may help you keep financial independence and keep up with debt repayments, even when you can’t keep the money coming in.
- As new parents – if you choose to have a family, you’ll want to ensure that they can enjoy a comfortable future – whether or not you’re around. You should consider having enough insurance to cover your debts and future education costs, as well as providing for day-to-day expenses.
- As older families – as your kids get older, your regular expenses can increase, with things like school fees, activity costs or a mortgage on a larger house. You want to make sure you can continue to maintain your family’s lifestyle if illness or injury get in the way – and make sure they’re provided for through the critical school years if something should happen to you.
- As pre-retirees – as your children grow independent and you pay down your debts, you may need less cover than before. You might consider having just enough insurance to finalise debts and set you up for retirement, if illness or injury mean you have to end work early.
Of course, everyone is different, and these are just examples. So make sure you consider your own needs when deciding what cover is right for you.
4. How much do I need?
The next step is to work out how much cover you need. Consider what existing investments you could draw on if you needed extra funds – like your savings, assets, superannuation or shares. When deciding how much cover you need, consider:
- Your regular living expenses, including food, utilities and other costs
- Your debts, including credit cards, personal loans, and your home mortgage if you have one
- How much your loved ones would need to live on if they no longer had your income, including day-to-day expenses and possible future education costs
- The cost of a funeral and paying off any final expenses you have, like outstanding bills
5. How much does it cost?
The cost of life insurance depends on a number of factors, including:
- The type of cover
- The level of cover you choose
- Policy features, such as how long payments continue for
- Your age and health when you start your policy