Your life is ever-changing; from the exciting time you are buying your first home to the moment you are starting a family. Throughout this continual change in your life’s priorities and financial responsibility, it’s important to consider how you and your loved ones are protected, so you can keep living the life you love.
This great Australian life is there to be enjoyed to the fullest with the confidence that you can seize opportunities and experiences whenever they come along. Life insurance offers the peace of mind that the life you’ve built for you and your family is protected and they will continue to be supported if things don’t go to plan.
Why is life insurance important?
Life insurance provides a lump sum payout so your loved ones will be taken care of should anything happen to you. This can help your spouse to keep paying the mortgage, your children to continue at their schools and having regular holidays as you had planned.
The payout could also help your family take care of day-to-day expenses and any large one-off payments that may come their way.
When do I need to review my life insurance?
MoneySmart suggests you review your life insurance policies every time your income or personal circumstances change to ensure you have the right type and level of cover.
For example, if you have children and are taking out a large mortgage or increasing the size of your mortgage you may decide you need more cover. Or, if you've paid off your mortgage or no longer have financial dependents you may decide to lower your cover.
Here are some other life events that might require a re-think of your life cover:
- Getting married (especially if you have a dependent spouse or new dependent children in blended households)
- Getting divorced (are your dependents changing?)
- Having more children
- Car loan or other major financial commitments
- Taking on the financial responsibility of an aging parent
- Refinancing your home
- Coming into an inheritance
- A pay rise (if you get used to living on a higher income, adopt a more expensive lifestyle and take on increased financial commitments etc)
- Losing a job (if funds are scarce, it might be time to re-think your level of cover and the attendant premiums)
- Positive change in health (for example, you’ve given up smoking)
- Kids approaching university age (to help them pay their fees)
- Kids becoming financially independent
- The death of your spouse (you may need to nominate a new beneficiary for your life insurance)
That said, many of these life events could keep you so busy that you may forget to review your insurance when they happen. To avoid falling short, it may be a good idea to set up an annual reminder to review your cover – for example, just before your annual premiums are due or at financial year end. Alternatively, if you have a financial adviser they should check your level of insurance cover during your yearly reviews.
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Ensuring you have the right cover in place
Rice Warner’s Underinsurance in Australia 2017 report shows that Australia’s working age population remains significantly underinsured.
The consulting group estimates that 94% of working Australians have some level of life cover. But its report reveals that of those who do have cover, the median cover level is estimated to be around $143,500, which is only twice the median annual household income. Therefore it may only cover the median household’s income for approximately two years.
The proportion of the working population with total and permanent disability (TPD) insurance is slightly less than life insurance at 81%, with a median cover of $99,500 (less than one and a half times the median household income).
Rice Warner says the situation around income protection (IP) cover is even worse with only a third of the working population currently insured. The median cover amount is only around 36% of median household income.
Why are Australians underinsured?
One of the reasons we’re underinsured is that we may take out life insurance (or have it as a default part of our super account) and then don’t look at it again, even when our circumstances change.
A 2017 study by academics from Griffith University found that people remain underinsured because they are rarely driven to buy insurance themselves, and many consumers have very limited knowledge about insurance products, they say.
Choose premiums you can afford
The overall cost of life insurance varies depending on factors such as your age, your health and your personal habits (like smoking). With TAL’s Lifetime Protection, you can choose between Stepped or Level Premiums, which affects how your premium increases each year. TAL’s CoverBuilder questions can help prompt you to think about what level of cover is right for you. If your circumstances change, or you would like to change your selected premium option, speak directly with your insurer or financial adviser.
As MoneySmart points out, life insurance is something you should discuss with your family. You should be realistic about how much cover you or your family would need, and remember not to leap to the conclusion that only the highest income earner needs to be insured.
MoneySmart adds that before taking out or changing your cover, you should also consider what money you or your family may receive from your superannuation, shares, savings and existing insurance policies.
Changing your life insurance policy
If you would like to change your life insurance policy, you can either ask your current insurer to make the changes or speak to your financial adviser.
What do I need to look for when buying life insurance or changing your life insurance policy?
If you decide to switch your cover to a different insurer, MoneySmart says you shouldn’t just look at the difference in premiums. You should also consider the:
- Level of cover: Will you get the same level of cover, and is this the cover you need? For example, if your current insurer covers any pre-existing conditions, will your new insurer do this as well?
- Waiting periods: Do any waiting periods apply to different types of benefits with your new insurer?
Flexibility is also important – life insurance today doesn’t have to be a one-size-fits-all proposition.
It is also important to consider that you’ll need to apply for the new policy, which will be subject to a duty to disclose information about your health and pastimes to the new insurer. For this reason it’s important to think about whether your health or pastimes have changes since you took out your existing policy.
If you switch to a different insurer, MoneySmart says it is important to keep your existing cover until you have a new policy in place, so you're always covered. Also be sure to check to confirm that there aren’t any benefits that may be lost if you are replacing your insurance policy.
If you feel it’s time to review your life insurance, get in touch with your insurer, your super fund or your financial adviser. They will talk you through your own specific circumstances and advise you of the best next steps.