Insurance 101 - Two Mile Bay Financial Planning - Torquay

Some Basics on Life Insurance

The follwing information has been taken from the Lifewise website. A website created by the Australian Government to educate Australians about thier Life Risk needs. For more information you can visit www.lifewise.org.au.

What is life insurance?

Put simply, life insurance provides the financial means to preserve your way of life, or that of your family, in the event of an accident, serious illness or even death. We don't like to think about 'worst case scenarios' but taking some time to consider the risks and having a contingency plan is like carrying an umbrella – it can't stop the rain but can provide much needed financial protection during life's storms. Here are some of the common risks you may face and how to insure against them:

What insurance products provide protection?

Serious accidents or medical conditions resulting in permanent injury or loss of life.

Term Life Insurance Total and Permanent Disability Insurance Income Protection Insurance Business Expenses Insurance and Key Person Insurance.

Sickness or temporary disability.

Income Protection Insurance Trauma Insurance Private Health Insurance (not a life insurance product).

Unemployment.

Generally, you can't insure against unemployment. The cover that is available is very short term and comes with many restrictions, which may impact on your ability to claim.

Don’t I already have insurance?

There’s a good chance you have already got cover and it’s important to find out what insurance you might already have. In doing so you may discover that you are already well covered or you might find out you have too much cover. What’s important is getting the right cover.

Here are two simple steps you can take:

1. Check your super fund Most Australians have at least one super fund and, by law, super fund trustees must provide a minimum level of automatic insurance cover for members. Premiums are normally deducted from your super contributions.

The first step you should take therefore is to check with your super fund(s) and see what cover you may have in place. But remember the level of cover automatically provided to members is unlikely to be exactly what you and your family need. Don’t worry though, it may be quite easy to adjust your level of cover so that it is more appropriate for your needs.

If you have more than one super fund and have life insurance with each of them, it might be worth thinking about consolidating the funds into one. It’s a good idea to look at the investment performance of the fund, the fees charged and, of course, the level and type of insurance benefits you have available before making any decision.

If you think you have lost a super account, the Australian Taxation Office

(www.ato.gov.au/superseeker) can help you find you lost super.

2. Check with your employer. Some employers have insurance in place for all of their staff, either through their super fund or through a separate stand alone insurance scheme. This means that your second step should be to talk to your employer about whether they have any insurance in place.

This is fast becoming a popular employment benefit offered by employers.

Because these insurance arrangements are specifically designed for employees you may also find you are covered by total and permanent disability insurance, income protection and even trauma insurance, in addition to Life Insurance cover.

How does life insurance work?

Life insurance works in much the same way as insuring your home or car – but it protects your most valuable asset – you.

How does it do this?

You pay a monthly or annual premium. Your insurance company then pays out if something bad happens.

What does it cover?

There are four key forms of life insurance – Life Insurance, Total and Permanent Disability Insurance, Income Protection Insurance and Trauma Insurance. To varying degrees, these products will provide you with either a lump sum or a monthly income in the event of accident, sickness or death. Just what is covered, depends on what type of life insurance you take out.

How much premium do I pay?

This depends on the type of cover you want, where you buy it and what sort of risk the insurance company assesses you to be. But generally speaking premiums are affordable for most Australians. For example, a 35 year old male, non-smoker applying for $500,000 of Life Insurance cover will pay approximately $30 a month. A 35 year old female, non-smoker applying for $500,000 of Life Insurance cover will pay approximately $25 a month.

Premiums can usually be paid monthly, quarterly, half yearly or yearly to suit your budget.

Why does the company assess my risk?

If you’re young, fit and healthy and work in a low risk occupation, you’re likely to be a lower risk than someone who’s overweight, smokes and works in a high risk occupation like a construction worker or miner. It’s common sense really – the lower the risk, the lower the premium. When you apply for insurance, companies often ask some basic questions that will help them assess your risks – it’s important to highlight that these questions are designed to help insurers provide you with access to cover, not to find a reason to not cover you. This process is called underwriting and in very few cases, insurers may ask for further details from you.

Will an insurance company always assess my risk?

No – not all policies are underwritten. If you have access to insurance through your super or through your employer, the insurance company may decide not to assess the risks for every individual in the policy. Instead they may spread the risk across everyone in the group. This is called a ‘Group Policy’