Key takeaways

• Factors that affect the premiums you pay, such as age, health, and lifestyle choices.
• Types of life cover available and what they provide.
• The reasons why you need life insurance. 

Life is unpredictable, and while we can't control every twist and turn, we can certainly plan for the unexpected.

An essential aspect of this planning is to secure your family's financial future with life insurance. In this comprehensive guide, we'll dive into the key things you need to know about life insurance.

What is life insurance?

Life insurance is a contract between you and an insurance provider that ensures a predetermined sum of money, known as a death benefit, will be paid to your beneficiaries upon your passing. This financial safety net can provide your loved ones with the means to cover expenses like funeral costs, mortgage payments, outstanding debts, and daily living expenses.

Term life insurance is one of the most straightforward forms of life insurance. You select a term (e.g., 10, 20, or 30 years) and if you pass away during that period, the death benefit is paid out to your beneficiaries. If you outlive the term, the policy typically expires and no benefits are paid. Term life insurance offers affordable coverage for a specific period, making it suitable for expenses that are due over a specific, set duration, such as mortgage repayments or tuition fees.

Life insurance can also be included within your super. More information on the pros and cons of having your insurance within your super fund can be found here. 

Why do you need life insurance?

Firstly, ask yourself how your loved ones would be provided for if you were no longer around. If you have dependants, such as a spouse, children, or aging parents, life insurance ensures they are financially cared for if you're no longer around to provide for them.

Life insurance can help your family settle outstanding debts like mortgages, personal loans, and credit card balances, preventing them from inheriting a financial burden.

Life insurance can also play a crucial role in your estate planning strategy, allowing you to leave behind a legacy for your beneficiaries or support charitable causes.

If you're a business owner, life insurance can facilitate a smooth transition of ownership and protect the business' financial stability in the event of your passing.

Some life insurances include trauma cover that can be claimed for certain critical illnesses, so it’s worth investigating if this is offered by your provider. 

Factors that affect premiums

You should be aware of several factors that influence the cost of your life insurance premiums:

• Age - Generally, the younger you are when you purchase a policy, the lower your premiums will be.
• Health - Your health and medical history play a significant role. A medical examination may be required to determine your eligibility and premium rates.
• Lifestyle choices - Smokers and individuals with risky hobbies, such as skydiving, often pay higher premiums due to increased health risks.
• Level of coverage required - The higher the death benefit you choose, the higher your premiums will be.

Determining the right level of coverage

Selecting the right life insurance coverage requires careful consideration of your individual circumstances. Here are a few tips to help you make an informed decision:

• Assess your needs - Consider your financial obligations, including debts, ongoing expenses, and future goals. This will help you determine the appropriate coverage amount.
• Understand policy terms - Different policies have varying terms, conditions, and benefits. Read and understand the policy thoroughly before committing.
• Seek professional advice - An insurance agent or financial advisor can provide personalized guidance based on your situation and needs.
• Compare quotes - Obtain quotes from multiple insurers to compare premiums and coverage options. This can help you find the best value for your money.

Tips for making a claim

In the unfortunate event of a loved one's passing, making a life insurance claim doesn't have to be a daunting process. Just follow these simple steps:

• Notify the insurer - Inform the insurance company as soon as possible. They will guide you through the necessary steps. Remember, the earlier you submit a claim, the sooner it can be settled.
• Provide documents - Prepare the necessary documents, including the death certificate and policy details. Make sure you know where the policyholder kept these documents so you can easily access them in the event of their death.
• Contact beneficiaries - Keep beneficiaries informed about the claim process to ensure a smooth transition of funds.
• Be patient - Processing claims can take time. Your insurer will work diligently to expedite the process, but understand that this will not happen overnight.

Regularly review your policy

Life is dynamic and fluid, and so are your financial needs. It is, therefore, important to review your life insurance policy periodically, especially when major life events occur, such as marriage, the birth of a child, or purchasing a home.

Adjust your coverage as required to ensure it aligns with your current family circumstances and no-one that you’d want to look after once you’re gone is left out simply because you haven’t updated your list of beneficiaries or adequately increased your coverage.

In Summary

Life insurance is a vital component of your financial planning toolkit. It offers peace of mind, knowing that your loved ones will be financially protected in times of need, long after you’ve gone.

By understanding the need for life insurance, factors influencing premiums, and the importance of choosing the right coverage, you can make informed decisions that safeguard your family's future.

Remember, life insurance isn't just about you – it's a gift of security and stability you can leave behind for those you cherish the most.

For full details on life insurance options, visit MLC or Plum. 

Further reading: 

·      Pros and cons of life insurance inside your super

·      The essentials of estate planning