Life insurance: the basics and things to consider

Give me the main points

  • The most important reason to consider taking out life insurance is to protect your family if you die or become unable to work.

  • There’s a good case for anyone with dependants or people who plan to have dependants to take out life insurance.

  • Life insurance policies can be bought through life insurance companies, financial advisers or brokers, or through superannuation funds.

  • The amount you roughly need is the gap between what your dependants require, and the value of your assets (not including your family home).

  • Whatever you choose, it’s important to reassess your life insurance cover against your needs as life changes.

Life insurance the basics and things to consider

Reasons to get life insurance

To protect your family and loved ones

If your loved ones depend on your financial support, then you should consider life insurance. It’s especially important if you have young children, or a partner or adult children who couldn’t maintain their standard of living without your income.

To leave an inheritance

Even if you don’t have any other assets, you can create an inheritance for your dependants, by buying a life insurance policy. You simply name them as beneficiaries in the policy.

To pay off debts and other expenses

It’s not just about providing income to your family to cover their everyday expenses. Life insurance policies will cover outstanding debts like mortgages, car loans, personal loans and credit card debt. You don’t want your dependants to be left with extra financial burdens. It could also cover the cost of your funeral, if you haven’t taken out funeral cover.

To bring you peace of mind

No amount of money can ever replace a person. But life insurance could provide you and your family with the peace of mind that if the unthinkable happens, they’ll be taken care of financially.

Different types of life insurance

Different types of cover fall under the broad heading of life insurance. Which one you’ll need depends on your situation.

  • Life cover – also known as term life insurance or death cover pays a set amount of money when you die. The money is paid to the people you name as beneficiaries in your policy.

  • Total and permanent disability (TPD) cover – pays a lump sum to assist with your rehabilitation and living costs if you become totally and permanently disabled. TPD is often bundled together with life cover.

  • Income protection – covers your lost income if you become unable to work because of injury or illness.

When to take out life insurance

You should think about life insurance when you get married, or have children or dependants who rely on you financially. Even if you don’t yet have dependants, you should consider taking out life insurance. That’s because insurance companies usually make you get a health and medical check before quoting your premium. It’s best to get those tests done when you’re younger and more likely to be in good health.

How much life insurance do you need?

The amount of life insurance you’ll need varies as your circumstances change. Let’s say you’re a 22-year-old with no dependants, you might only want enough insurance to cover the costs of a funeral.

But once you get married, have children and take on a mortgage; you’ll probably need more cover to provide for them. As you get older your superannuation builds up, your children become independent and you’ve paid off your mortgage, you may need less cover. You may not need any at all.

To help work out the level of insurance cover you should consider the following.

  • How much cash your family would have if you were to die or become disabled. You should include your super, shares, savings and existing insurance policies.

  • How much cash your family would need if the worst were to happen. Consider the size of your mortgage and any other debts, as well as childcare, education and other costs.

The difference between these is the amount of cover you should ideally get.

Other things to consider

Funerals can be expensive. According to Australian Securities Investment Corporation (ASIC) funerals can range vastly. They can range from $4000 for a basic cremation to around $14 000 for a more elaborate casket and burial.

If you have life insurance, this can be used to cover your funeral expenses, but if you don’t, you may want to consider some other options. There are a few different ways you can pay for a funeral including:

  • pre-paid funerals

  • funeral bonds

  • funeral Insurance

  • term deposit or savings account (this account would form part of your estate when you die, so make sure you tell your beneficiaries).

Talk to us to get a broader understanding about how you can plan for the future.

Source: NAB

Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://www.nab.com.au/personal/life-moments/family/life-insurance

National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.

© 2022 National Australia Bank Limited (“NAB”). All rights reserved.

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CFP® Dip FP
Authorised Representative 298494
Interprac Financial Planning Pty Ltd 

Darryl Jopling

Senior Adviser

I have worked in the financial services industry since 1982 and as a Financial Adviser since 1999.

I have worked for large Financial Planning businesses, Membership based organisations and looked after the financial planning needs of clients within an Accounting Practice before starting my own business.

I am married, have 4 older children and a grandson and I am keen golfer with mixed results like many .

I have been through many of the strategies I talk with clients about myself and with my family.

I have been through the journey of seeing my parents move into Aged care and negotiated the difficulties and pitfalls of understanding the system for them and this gives me an excellent insight into what is required to assist families at this difficult time.

In a previous roll I used to run retirement seminars looking at Centrelink and Retirement Incomes and how to make these work for you. I have helped many of my clients with Aged Care advice when their parents needed to move into Nursing Homes. For many clients I assist them with superannuation, building wealth and protecting their loved ones with insurance.

I am supported by his, Licensee, Interprac Financial Planning’s in-house resources and ongoing technical, systems and training.

I am committed to understanding your needs and identifying strategies and products to help you achieve your goals.

My guiding principle as an Adviser is to design plans which help to provide my clients with clarity of purpose and the opportunity to build a solid financial foundation.
I will take the time to listen, explain things clearly and keep you informed throughout the advice process.

My experience is complemented by professional qualifications including:

  • Certified Financial PlannerTM Professional
  • Diploma of Financial Planning

At Choice Financial Advice we work with you along the way on life’s journey.

Whether you are getting married, starting a family, embarking on the trip of a lifetime, planning to enjoy your years after work or assisting elderly parents with Aged Care and Nursing Home placements, we can help.