Life insurance, also known as term life insurance or death cover, provides a lump sum benefit to
your nominated beneficiaries if you die or get diagnosed with a terminal illness. This money can be
used to help your family pay your funeral, the mortgage, or clear any outstanding debts.
Life insurance is as a contract between the policyholder and the life insurance company. As the policy owner, you pay them a premium, either monthly, quarterly or annually, in exchange for the financial protection of your loved ones.
A death benefit might be a good idea if you have many financial obligations, like a mortgage or outstanding debts and/or people depending on you financially. Generally, your need for life cover will change as your finances and family circumstances evolve.
It’s important to review your life insurance policy type and cover amount after a significant life event. For example, buying your first home, getting married or divorced, having children or retiring. However, do not cancel your existing life cover until you have a new policy in place.
A life insurance policy is typically purchased for the benefit of others, as it covers you for death or diagnosis of a terminal illness. Term life insurance can provide your loved ones with enough money to support them in maintaining their current lifestyle.
However, there are different types of insurance available under the life insurance umbrella, including Total and Permanent Disablement (TPD) cover, trauma insurance and income protection.
The type of cover you choose should depend on your specific requirements, like your occupation, financial obligations, and the premium you can afford to pay.
The cost of your premium will generally depend on:
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The amount of life cover you need will depend on your unique requirements. For example, your stage of life, if people depend on your income to cover living expenses and your funeral costs. A general rule of thumb is to consider a minimum amount equal to ten times your annual salary. However, you might want to speak with your broker to help you calculate your sum insured.
You can typically buy insurance in one of three ways:
You can buy life insurance directly from the life insurance company by telephone or via their website. However, it’s up to you to gather and compare quotes; no guidance or advice will be provided.
Retail life insurance policies are generally purchased through a broker or comparison website. General advice will be provided to help you compare plans based on your unique requirements so you can make an informed decision.
Generally, life insurance is automatically added when taking out super fund. However, the default cover amount might not be enough for your unique requirements, and because premiums get paid from your fund, it could reduce your retirement savings.
Should you pass away, your life insurance beneficiary must follow the steps below to claim the death benefit:
Step 1: Find the latest copy of your life insurance documents.
Step 2: Notify the insurer of your death.
Step 3: Obtain a death certificate.
Step 4: Complete and submit the claim forms and other requested documentation.
Step 5: Wait for the claim to be assessed, and if approved
Step 6: The death benefit is generally paid as a tax-free lump sum to your beneficiaries.