As with any big financial commitment, choosing a life insurance policy isn't an easy decision. There are so many factors to consider, from what kind of cover you want to the premiums you can afford.
The good news is there are many different life insurance options to choose from, giving you room to select the one most suitable for you. But how do you narrow it down to find one that best suits you and make your final choice?
While it will ultimately be up to your individual preferences and requirements, there are a few factors it pays to keep in mind when you're making your decision.
What does a life insurance policy cover, and what are the benefits?
Life insurance is designed to provide a lump sum of money to your nominated beneficiary after the event of your death. While this is an incident no one wants to think about it, having this financial preparation in place can prove an invaluable aid to the family you leave behind.
Coping with the loss of a loved one can have both an emotional and financial impact. Dealing with ongoing debts, unexpected bills or general living expenses can be tough after the loss of a partner, but taking out life cover can provide a much needed financial buffer during this difficult time.
There are a variety of policies available offering varying levels of cover, so it may be helpful considering what you will need from your life insurance.
MoneySmart, the financial guidance resource run by the Australian Securities & Investments Commission (ASIC), advises that some of the most common types of life insurance include life cover, total and permanent disability cover (TPD) and trauma cover.
Life cover is the main policy that provides the lump sum pay out to your beneficiary after you have passed away.
Alternatively, you may also want to add the extra cover for TPD (Total and Permanent Disablement), trauma or serious illness into your policy as well. These will cover you in the event that you are diagnosed with a major illness or injury or if you are permanently disabled, helping with the cost of rehabilitation and living expenses.
When it comes to premiums, it is also prudent to know the difference between stepped and level alternatives. Stepped insurance premiums increase every year as you age, but are typically cheaper at the beginning of your policy.
Level premiums remain steady throughout the years, but as a result, they are more expensive at the start. You may want to consider what kind of premium you can afford and whether you can still afford it as you grow older.
You should be aware that some policies will also exclude certain injuries, illnesses or pre-existing conditions for which you are already experiencing symptoms. For that reason, it's important to go over the fine print thoroughly and always disclose this information before signing away.
How to find the right life insurance
The first step is to calculate how much your family will need, think about what they would require to meet their current living expenses, service any debts and be able to put a little away for unexpected events. The next step is to do your research on the policies available. To find out more about the different policies available you can visit a professional advisor, contact the insurance companies individually or you can compare life insurance quotes and products with Choosi.
This information is general in nature and does not take account of your financial situation.
These articles are provided as reference material to allow more informed decision making, but are not intended as being a complete source of information on any topic. All readers should make their own independent analysis on the topic to make sure they have considered the aspects that are important to them.