Many Australians have a set and forget mentality when it comes to their life insurance. But it could result in not having enough cover when you need it most.
What is life insurance?
There are four types of life insurance:
- Life insurance: this cover can pay out a lump sum benefit to your loved ones in case you pass away.
- Total Permanent Disability (TPD) insurance: can provide a lump sum payment if you were to become permanently disabled due to accident or illness and are unlikely to ever be able to work again.
- Critical illness/Trauma insurance: can help if you are diagnosed with a significant illness of specific severity as set out in the relevant Product Disclosure Statement.
- Income protection insurance: typically offers a monthly benefit to make up for lost income if you can’t work due to illness or injury.
What is underinsurance?
The purpose of life insurance is to provide an adequate level of financial protection for you and your loved ones. Underinsurance happens when you have life insurance, but the amount is not enough to cover all your financial obligations should the unthinkable happen, or you don’t have cover at all. A report by Rice Warner suggests that a lack of awareness about life insurance and the role it plays in protecting what you value most, may be the reason behind this problem.
How much cover do I need?
The level of cover you may need varies due to factors such as income, age, family, working status and number and age of your children. According to Rice Warner, the underinsurance gap is much greater for parents with young children. Everyone’s situation is unique, so engaging with your financial adviser can help you understand your insurance needs.
I already have life insurance through super
While you may have some level of default life insurance cover included in your super, it’s important to consider whether the amount and level of cover is enough for your personal needs. The default cover of typical superannuation funds may not meet the full insurance needs of your family.
Revisit your cover
Your personal needs and circumstances often change as your life changes and it’s a good idea to review your cover to make sure it is still adequate. If you need help reviewing your insurances, book a time to chat here and let’s talk over what’s best for you.
Any advice is general in nature only and has been prepared without considering your needs, objectives, or financial situation. Before acting on it you should consider its appropriateness for you, having regard to those factors.