Do I Need Life Insurance?

do-i-need-life-insuranceNot everybody needs to take out a life insurance policy, but if you have dependants who would not be able to cover mortgage repayments or living costs without your income, then it is recommended that you take out a policy.

But which policy is right for you and what do you need to consider when taking one out? These are questions that we regularly get asked, so let’s have a look at each of them in turn:

1. What Is Life Insurance Exactly?

It is not a nice thing to think about but considering what would happen if you or your partner were to suffer a serious illness, injury or pass away unexpectedly, it is of utmost importance.

Life insurance provides cover for you and your loved ones should you find yourself unable to work and earn money.  Mortgages, living expenses and credit card payments show no sympathy to any misfortunes and not planning for these scenarios could leave your family struggling to stay afloat should anything happen.

Taking out life cover can help safeguard your family’s future and give you peace of mind if something were to happen. Research shows that the majority of people could survive for just one month if they had to rely on their savings to cover living costs, debts and repayments.

2. What Does Life Insurance Cover?

The majority of Australians would presume that life insurance only provides cover in cases of death.  In reality, there are various categories of life insurance that can protect you and your loved ones from a range of different scenarios that would leave you unable to work and earn money. These scenarios range from fairly minor ailments that would allow you to return to work after a few weeks or months, to major health issues such as cancer or permanently disabling illness that may leave you unable to take up full-time employment ever again.

The general life insurance categories include:

  • Death cover, that also includes terminal illness, paid out in a lump sum with the purpose of providing for debt payments and lifestyle payments for your dependants.
  • Total and permanent disability cover that includes any disability that would render the insured unable to work permanently. This is also paid out in a lump sum to help pay debt, medical expenses, and living costs of dependants.
  • Trauma. This covers specific illnesses and injuries and is also paid out in a lump sum to pay for medical expenses, debt repayments and any changes of lifestyle the insured may incur.
  • Income protection usually covers up to 75% of your gross income in the event of illness or injury. This cover is paid out in the form of a monthly benefit and protects your family and yourself from the consequences of lost income if you cannot work for a while.

3. How Much Does It Cost?

Taking out a life insurance policy is not as expensive as you may think.  Everybody has different family and financial circumstances and the cost of life insurance can vary according to the level you need, your health details, age, and whether or not you smoke.

A 35-year-old male who does not smoke and who is in good health, can expect to obtain around $500, 000 in death and incurable illness cover if he were to pay out $30.00 every month – women would pay approximately $5 less.  For an accurate and detailed idea of the costs and level of life cover appropriate for you, seek the help of a financial adviser.

4. Should I Wait?

Life’s unpredictability means that taking out some sort of income protection cover is useful no matter how old you are but when you have your own family, having cover in case of your illness, injury or death is pretty essential. Choosing not to take out a policy could leave your finances in a sorry state should any such misfortune befall you.

When you are young and in good health, the rate of cover will be lower but this is likely to change as you get older or if you develop health complications.  When applying for a policy you will need to answer questions about what you do, your health and lifestyle and depending on the level of cover you want, you may need to fill out a more detailed form or take some medical tests.

If you choose to wait until you are older before taking out cover, your cover will cost you more and you may not be able to get the cover you need.  As long as you pay the premiums when they are due, your cover cannot be taken away once you take a policy out.

The information in this article does not constitute legal or financial advice. If you would like to discuss any of the above in greater detail, please contact your local Axis adviser.