Life insurance is really fairly simple – the policy owner receives the insurance proceeds if the insured dies.
A premium is paid for the selected level of cover and is based on the insurance company’s risk, eg. the older the person, the higher the risk, the higher the premium, or, if the person is a smoker or pursues hazardous leisure activities, the higher the risk will result in a higher premium.
Life insurance (Death) can be taken out inside or outside of superannuation. Premiums are tax deductible inside superannuation, however are not deductible outside superannuation. The most appropriate option for you should be discussed with the aid of your financial planner.
Among the reasons why people take out life insurance are to pay out debts, to buy the full share of a business if your business partner dies, to pay for funeral costs and to provide for your family after you have gone.
The sad fact is the majority of Australians are significantly underinsured or do not have any life insurance at all.
After realising you need life insurance, the question then becomes – how much? There are various formulas that can be used and most take into consideration your age and the age of your dependants, your current income and lifestyle and debts, including a mortgage.
Generally, younger people require more life insurance as older people typically have less debt and their dependants have grown up and moved out of the house.
The question of how much life insurance depends on your own circumstances and should be considered with the assistance of your adviser.
As a supplement to life insurance most of the Australian public also have Total and Permanent Disablement (TPD). This is usually owned within superannuation because it is provided more often than not as a standard when you open the superannuation account. TPD provides a lump sum benefit if the insured becomes totally and permanently disabled as defined by the policy.
When applying for TPD insurance, the insured will generally need to choose between an “own occupation” or “any occupation” definition. Full details will be available in the product disclosure statement – own occupation requires that the insured is unable to work ever again in their own or normal occupation, whereas any occupation requires that the insured is unable to work ever again in any occupation for which they are reasonably suited by education, training or experience. Depending on the policy, specialised definitions for professionals and homemakers may be available.
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