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Many Australians wouldn’t think twice about buying insurance for a vehicle. Home and contents coverage is a no-brainer, and for a rising number of people, private health cover is on the cards as well.
But why is it that so many Australians overlook insuring one of their most important assets – their lives?
Life insurance is one of the most critical insurance products anyone can buy, but unfortunately, many Australian’s aren’t preparing for what may happen to their family and loved ones in the unfortunate event of their death.
Research conducted in 2010 for LifeWise found that Australians are chronically underinsured. Not only did the report find that one in five families will be impacted by the death of a parent or serious accident or illness, but that the typical Australian family will lose half or more of their income following such an event.
“Underinsurance is expected to cost the federal government $1.3 billion over the next 10 years,” the report found.
Many families don’t feel any pressing need to obtain life insurance – and the general busyness of life gets in the way. But as the LifeWise report points out, the typical family’s parents are in their 30s and have their own mortgage. If either parent were to pass away or suffer serious illness, the lifestyle and future of the family would be in jeopardy.
This is especially true for families with young children. Childcare, education and general cost of living expenses can be a significant burden for a single income household. Financial trouble added to the burden of losing a loved one can be overwhelming.
This is why having a plan for life insurance is so critical. If you have dependents of any kind, it’s important to make sure your life insurance is up to date.
But where should you start?
Superannuation is a great place to begin. Most workers with a typical superannuation fund should consult their adviser as to the level of cover that should be included in the fund. The benefits of dealing with life insurance in the super fund that premiums are often cheaper, and you can often increase the default amount by working with your super provider and providing them some extra information.
This information usually relates to your health and medical status. Remember – it’s critical that you be as honest as possible about any and all medical conditions. If you don’t properly disclose everything now, in the event of a claim you could be denied based on fraudulent information. If that were the case, no one would have access to anything.
If the amount in your superannuation fund isn’t as much as you would like, and you find you aren’t able to increase that amount, finding life insurance through the market is a viable method. It works like any other insurance product. But be prepared to truthfully answer any questions about your medical condition.
The next question is slightly more complicated. How much should your life insurance cover?
That answer will depend on many factors, including the number of your dependents, their age, your marital status, or even whether your partner is working.
Consider a family with two working parents, two children aged five and three, with a household income of $120,000 per year. In the unfortunate event of the death of one parent, that income is halved. It’s a good rule of thumb to assume life insurance should cover raising children until they are 18 years old and adults themselves. In that case, 15 years multiplied by the yearly income of $60,000 is $900,000.
But if that family only had one income earner, and had perhaps more or fewer children, that number may differ.
Remember that life insurance also covers other elements including trauma cover, along with income protection. In particular, income protection, (otherwise known as salary continuance), is an important hedge if you become injured or ill but cannot work.
Check your super to see if you have salary continuance included. But it’s also worth seeking extra cover. Often, insurance within superannuation may only cover income for a period of two years. Having another plan outside of superannuation covering your income until age 65, with a two year waiting period, would provide steady income until your retirement.
(Income protection premiums outside of superannuation are also tax deductible).
Life insurance is more than a normal insurance product. It’s about peace of mind. Give yourself an insurance audit today – and take the necessary steps to ensure your loved ones will be taken care of.
For further questions on life insurance, please contact us on (03) 9999 7200 or here.
Disclaimer: The information on this site is of a general nature only. This is not a recommendation or endorsement of any product or investment. It does not take your specific needs or circumstances into consideration. You should look at your own personal situation and requirements before making any financial decisions or consult the advice of an accountant or financial adviser.