Choosing the right life insurance cover

If anything is certain, it’s that life is uncertain. While we can never be adequately prepared for what is around the corner, putting in place appropriate life insurance cover can help ensure you and your loved ones have adequate financial security should the unexpected occur.

Choosing a policy shouldn’t be a decision made with haste or based purely on ease and speed of application – not all policies are created equal and not all policies cover all possible scenarios. Knowing what you’re protecting and ensuring you choose a quality policy that won’t throw up any unexpected surprises in the unlikely event you need to make a claim.

Importantly, having a clear understanding of your personal circumstances and the implications of an incident that could temporarily or permanently impact your ability to work is key to ensuring you put in place a policy that will deliver for you when you need it most.

What options are available?

 There are several different types of life insurance covering a variety of different scenarios that may impact your ability to earn an income either permanently, or for a short or extended period of time.

These options are grouped into four categories – life insurance, trauma insurance, total and permanent disability insurance and income protection.

• Life insurance – pays an agreed lump sump figure in the event you pass away or are diagnosed with a terminal illness.
• Trauma insurance – pays an agreed lump sum in the event you suffer a Major Illness, e.g. if you suffer a Heart Attack, Stroke, or Cancer
• Total and permanent disability insurance – pays a lump sum in the event you suffer an injury or illness that leaves you permanently disabled and unable to work.
• Income protection – provides a monthly payment of up to 75% of your income if you’re unable to work for an extended period due to illness or injury.

Knowing what you’re protecting

Before you go about selecting a policy, there’s a few key questions you need to ask yourself in order to understand what level of cover is suitable to your needs.

• Do you have any major debts or large expenses that need to be paid off? And how much would it cost to pay them off in one lump sum?
• What is your cost of living? How much would you and your family need to get by you were rendered unable to work temporarily or permanently?
• What future expenses do you need to think about? How much do you need to provide financial security for yourself and your loved ones? Consider ongoing costs such as education.

As Perks Insurance Director, Eddie Bell explains, not every policy covers all scenarios, which highlights the need to clearly understand your personal circumstances and what exactly you require protection for.

“Depending on your profession, your personal financial circumstances and what stage you are at in life will all play a major factor in selecting the right level of protection,” he says.

“For instance, a young professional working in salaried employment who already has a level of cover through their super fund will have entirely different requirements to that of a surgeon with two young kids at school and who requires a far greater level of cover.”

“Ultimately, you want to have a good safety net, but you also don’t want to be over-leveraged to the point that you’re paying for cover that isn’t fit for purpose and is drawing too heavily on your cashflow.” 

Finding the right policy

While a formula like the above can be useful in helping to navigate through the complexities of selecting the type of cover and the level of cover you require, it’s not an ironclad strategy.

Circumstances can change quickly and there’s a breadth of factors you will need to consider, such as employment status, debt, assets, cashflow and family to name a few, that will all have an influence on your final decision.

Another key consideration in your decision making should be the underwriting process, which is how an insurer determines the level of risk they take in insuring you. This is based on a range of factors including age, health, medical history, lifestyle and occupation. All these factors determine the price of your premiums and what will and won’t be covered.

Some insurers will ask for this information upfront, while others don’t require these tests at the until later. Although it can appear easier and less intrusive to choose a policy that doesn’t require you to go through the underwriting process at the outset, the downside is that you’ll have to go through this process when you want to claim on the policy.

As Eddie says, knowing what to look for and what to avoid and taking the time to do some research is important to ensuring you end up with a policy that will deliver for your needs.

“Reputation, ease of application and credibility are all important factors you’ll need to consider when making a decision on which provider you go with,” he says.

“In our experience, off-the-shelf life insurance policies, such as those you see advertised on TV, don’t tend to cut the mustard when push comes to shove, and personally, I’ve never recommended such a product to my clients.”

“Many people will also have compulsory insurance as part of their Superannuation, but this is often limited and can contain some restrictive clauses; however, for someone requiring a less sophisticated or low-level of cover, it can be a good option.”

“Importantly, no matter what stage you are at in life, you want to make sure the cover you have is what you expect it to be – if something were to happen, the last thing you and your family will want to deal with at that time is an insurance policy that contains clauses or limitations that you weren’t aware of and that leaves you out in the cold.”