The benefits and empowerment of taking out life insurance
Life insurance is a financial safety net for your loved ones, in the event that you pass away or are unable to provide for them anymore. With the right policy in hand, you can feel empowered that you are protecting the life you’ve worked so hard to build. But in order to make the best choice on a policy, you need to understand exactly what type of benefits you can expect, and also weigh up the pros and cons.
What is life insurance?
Life insurance is a contractual agreement between you and an insurer. It’s a policy where, in the unfortunate event of your death, the insurer pays out a lump sum to your family or beneficiaries, with that specific amount being determined by your chosen cover amount and underwriting criteria. Some policies cover things like terminal illnesses, which can provide financial support during an extremely challenging time.
So why is life insurance so important? Ultimately, it’s a way to help financially protect your loved ones when you are no longer able to do so. The lump-sum payout can be used to replace your income or however your family sees fit. Most policies nominate immediate family members, but beneficiaries can be anyone you choose. Bear in mind that without a designated beneficiary, the payout will go to your estate.
Maximising benefits: How you could make the most out of your life insurance
Life insurance comes in a number of different forms, with some of the most common being:
- Life insurance: Also called ‘term life insurance’ or ‘death cover’, this type of policy covers for death or the diagnosis of a terminal illness. In the event of the latter, the payout is directed to you. In the event of your death during the active policy period, a lump sum is paid out according to your preferences, whether to loved ones or nominated beneficiaries.
- Critical or serious illness/trauma insurance: Specifically tailored to cover serious illnesses such as cancer, a severe heart attack or stroke. Depending on the insurer, you can take out this policy on its own, or include it as an additional extra to complement your life insurance cover.
- Total and permanent disability/permanently unable to work insurance: Covers instances where you experience a total and permanent disability (TPD) due to sickness or injury, rendering you incapable of working. Definitions of total and permanent disability can sometimes vary among insurers, which is why it’s so important to read through and understand the product disclosure statement (PDS). Similar to serious illness insurance, this can be a standalone policy or an optional extra on your life insurance.
- Children’s insurance: Provides coverage for your children in the unfortunate events of death, diagnosis of a terminal illness or specific covered illnesses. The illnesses covered can differ between insurers, and this insurance is commonly available as an addition to your life insurance policy.
Enhancing coverage to suit your lifestyle
Customising your life insurance cover can help it align with your unique needs and lifestyle. Things like TPD and Serious Illness can be added to provide extra protection against specific events.
Also, as your life changes with major events, like getting married or having kids, you can adjust your life insurance policy even further by increasing your benefit amount or taking out extras to help protect your growing family.
Evaluating life insurance: What you may wish to consider
Getting financial protection for your loved ones requires you to carefully consider all the benefits and potential drawbacks. To help get you on the path to finding a policy for you and your family, here are some of the pros:
- Peace of mind: Knowing your loved ones can have financial security in your absence can give you peace of mind.
- Paying debts: A Life insurance claim payment could help your loved ones repay outstanding debts, which may stop them from feeling financial strain during a difficult period.
- Financial planning: Ensure your family has enough to manage long-term expected payments such as education or housing.
But there are also a couple of things you should bear in mind:
- Cost: Premiums are influenced by things like your age, gender, health and lifestyle. You’ll need to consider this when making your decision – and most importantly your budget – to make sure the policy is affordable for you.
- Potential underutilisation: If you outlive the policy term, there may be a perception that you never really needed it in the first place. Keep in mind that you never know what the future holds.
Understanding the life insurance payout process
There are several steps involved for a life insurance policy to be paid out. Even though this is likely to be a highly emotional time, it’s important your loved ones get on top of this as soon as possible.
- Notification of death: Beneficiaries or family members notify the insurance company promptly.
- Submit the claim: Beneficiaries submit a death claim with all required documentation (e.g. death certificate, claim form etc).
- Claim is reviewed: Your insurer assesses the claim, considering the policy’s requirements and potentially investigating the circumstances.
- Payout: Once approved, the insurance company pays out the benefit amount to the beneficiaries.
What does a life insurance payout involve?
A life insurance payout can help take care of things like making mortgage payments, clearing any outstanding debts you and your family might have accumulated, as well as to make sure your loved ones can maintain their current standard of living without additional financial struggles.
So, what about the amount of cover you take out – how much life insurance do you really need? Getting the right amount of cover isn’t a one-size-fits-all solution. Some of the things to consider could be:
- Existing debts, including personal loans, mortgages and credit cards.
- Living expenses – covering rent, bills, childcare or school fees, utilities, food, petrol and more.
- Partner’s income.
- Number of children (and their ages).
- Super balance, savings and investments.
Life insurance is not just a financial product. It's a way that you can help to secure your family’s financial future and feel empowered that you are getting the most out of your life. At Choosi, we help with all the complexities and insurance jargon so you can focus on what matters most: choosing the right policy for your needs.
Make the proactive choice for yourself and your loved ones by comparing life insurance policies today.
Disclaimer: Choosi doesn’t compare all brands in the market
5 Dec 2023