Do I Need Life Insurance?
Written by: Canny Advisory
What is Life Insurance?
Put simply, life insurance is a product in the market that provides you or your family with a lump sum of money if you were to pass away or become terminally ill. Like most types of insurance products, there are myriad companies offering these types of products, and all boast special features and discounts they hold within them.
Life insurance is a much simpler insurance product to deal with compared to Income Protection or Total and Permanent Disability Insurance (TPD) because it is purely event-based, as you get paid out upon your death, or in the event that you become terminally ill.
So, Do I Need Life Insurance?
This is the $1 million dollar question!
Most ads you see on the TV say you get $500k of Life Insurance for this per month of $1 million dollars for this per month. Whether you do or do not need life insurance comes down to your specific personal situation at any given point of time in your life. There are different triggers along your lifetime that would deem you require less or even more cover. Different stages like this include:
- Buying your first home
- Welcoming your first child
- Having a second child
- Moving into a bigger home
- Purchasing an investment property
- Children starting primary school or secondary school
All of the above-mentioned events should trigger an insurances needs analysis to determine what level of insurance cover you need. It is important to note that you not get hoodwinked watching the TV ads saying things like:
I owe $400k on my mortgage, so I took out a $400k policy!
This might be OK if you are a single person with no dependents, but for a sole income earner with two young children and not a lot of assets, this could be significantly under what is really required in the best-case scenario, should you pass away. The purpose of life insurance is to provide money to your loved ones at a time when they will need it the most!
What Does Life Insurance Cover?
As mentioned previously, life insurance provides you cover for passing away or becoming terminally ill.
Some research into different products and offerings is essential, as some offer benefits on top of this as well, or put other restrictions in place. For example, some companies may have a terminally ill definition of 12 months or less, whereas most have now moved to two years or less. Some products may also offer some kind of quasi-total and permanent disability accident option as a part of the life insurance as well, as built-in. Most importantly, you need to work out what features you want in a product and work with a Financial Adviser to ensure that these features appear in the final outcomes you achieve.
What Doesn’t Life Insurance Cover?
Whilst most insurance products are the same, with regards to life insurance, the main constant is that they do not provide cover for death by suicide within the first 13 months of a policy. There is often a clause with regards to acts of war, being in an accident where you were under the influence of either drugs and/or alcohol as well.
When you start the process of applying for insurance, there is a whole host of questions that you are asked and it is important to be as honest as you can, as there is something called innocent non-disclosure whereby your cover could be cancelled if you were found to be lying in your application.
Life Insurance FAQ
How Much Does Life Insurance Cost?
Great question! But, unfortunately not a question that there is a simple answer to.
Insurance premiums are based on how old you are, whether you smoke, what health issues you may be dealing with, your sex, your occupation as well as your family history. There is no hard and fast rule to say if you want $400k of life insurance cover, this is what it costs based on some magic formula.
How Do I Pay For Life Insurance?
Life insurance can be paid from your personal bank account or from your superannuation fund. In fact, most of you will already have some level of cover held within your superannuation, so it is important to look into this before rushing to cancel these before undertaking any pre-assessments or looking into other alternatives. Again, if you seek the advice of a Financial Adviser they can talk you through this process.
Does Life Insurance Cover Funeral Costs?
Some life insurance policies can cover funeral costs, but not all do so it’s extremely important if this is something that you want to be included that you work out what you’re wanting, exactly, from a product before settling on one as you don’t want to cause more stress for your loved ones than you absolutely have to.
Is There A Minimum Age To Get Life Insurance?
Like with other ancillary features, different companies have different minimum ages for taking out life insurance or children’s trauma and there is usually a limit based on it as well. You would just need to shop around and see what companies offer for the children you ware wanting to have covered on a policy.
Can Life Insurance Be Cancelled?
Put simply, yes.
If you have lied in the application and the insurance company finds out, they can cancel the cover. If you are late making premium payments, the cover can be cancelled. When the cover is held under your superannuation fund, if you don’t abide by the minimum fund requirements your fund has, usually $6,000 but could be $7,000 or $10,000 as well as depending on your superannuation fund. It’s important to check all of this out when applying for coverage and reviewing your own current coverage.
Is Life Insurance Tax Deductible?
This is a tricky question, as there are cases in which it can be, however, predominantly, it’s not.
In the case of some types of business expenses, when cover is for a revenue purpose, this cover can be tax deductible however the payout would then be taxable.
When paying for cover from your superannuation, the superannuation fund received a tax deduction on the premiums, but this deduction is not for you personally.
Canny Advisory
From what you can see above, life insurance is not as simple as you may think as different circumstances lead to different decisions. It’s important in this case that you use the services of a professional financial adviser, like one of our team at Canny Advisory to sit down and undertake a risk insurance needs analysis to identify any shortfalls in your protection plan.
Get in touch with our team today to have a chat and make sure you’re covered!
