How To Choose Your Life Insurance
Choosing the right Life Insurance policy is an important decision and there are several key factors to consider before you begin comparing policies:
1. Check you haven’t already got Life Insurance.
You may not be aware but life insurance could be part of your Super fund or you may have group life insurance cover through your place of employment. If you do have existing life insurance make sure you read the policy and the Product Disclosure Statement to be sure you understand your cover and that you are covered to a sufficient level. Life Insurance through your super funds can be a cost effective option but may only provide a minimum level of cover. If you have more than one super fund with life insurance cover it may be worth consolidating this cover.
2. Who should be covered?
Generally if you earn an income and have dependents then Life Insurance is a very sensible choice. Don’t just focus on highest income earner in the family as it is important to consider how your family will function should something happen to any party. A joint-ownership life insurance policy is also an option where you can nominate for example your spouse as co-owner of the policy and the benefits paid to both jointly or to one policy holder in the event of the death of the other.
3. How much cover do you need?
If you purchase too much life cover your premiums may become a burden and too little may not cover the expenses you need if you were to die or be taken ill. The right way to answer this question is to take a complete inventory of your assets, debts and dependents. Consider the number of dependents you have and their age, it may not just be children but elderly dependents. Ideally you want to provide for your children until they are old enough to fend for themselves, factoring in the necessary education costs on the way.
If anything should happen to you, it’s not nice to leave a heap of crippling debts behind for your family. What debts would need to be paid off if you were to die? Add them all up including your mortgage and credit cards debts. Ideally you require at least enough cover to pay off your mortgage, credit card debt, medical expenses if you were to contract an illness, and your funeral expenses.
4. How are the policy costs determined?
A Life Insurer will consider several factors before issuing you with a policy quote. Generally this is your life expectancy, your medical history, your gender and a personal risk assessment. So if you are young, healthy and don’t partake regularly in dangerous sports you should get a pretty cheap insurance quote plus once you have life insurance it’s guaranteed renewable regardless of conditions you may suffer later in life. Smokers are likely to face a higher premium than non-smokers and women can generally get a cheaper policy than men and the life expectancy of a woman is known to be longer than that of a man.
Medical examinations are not necessarily mandatory before you purchase a life insurance policy but it is better to be wary of insurers that offer insurance with few questions and no medical checks as their premiums can be higher than other more thorough insurers and they may be less likely to pay out due to a medical loophole.
It pays to be honest and up-front with your life insurer. You should disclose all previous medical conditions even if it’s from years ago, this doesn’t necessarily mean won’t get cover or that your cover won’t include pre-existing condition. What it does mean is that you won’t run the risk of invalidating your policy due to a medical issue that you should have disclosed. It has been estimated than one in ten life insurance policies do not pay out due to ‘withheld medical information.’
Hobbies, particularly dangerous sports are understandably a major consideration. If you enjoy high risk hobbies such as skydiving or base jumping you may think that life insurance is not an option or will be too pricy but applications are usually assessed case by case and insurer should consider all factors.
5. Check the cover/ exclusions of your policy
Not all life insurance policies are the same and you should tailor your policy to meet your needs. You need an adequate amount of cover for the right length of time that incorporates your medical history and your current lifestyle.
Check that the product you are considering is inflation indexed so keeps up with cost of living and review the payment structure. Level payments mean your payments will stay roughly the same for the duration of the policy whereas stepped payments have premiums that are calculated on your age. The younger you are the cheaper the premium but the premiums are re-rated every year and the price increases along with the policyholder’s age.
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The content of this guide is of a general nature and does not constitute financial advice. It is provided for general information purposes only and you should seek your own independent, professional advice when considering insurance products.