How To Choose The Right Life Insurance Policy

There are a few factors you should consider before choosing the right life insurance policy for you.

What Is Term Life Insurance?

Term life insurance is a form of personal insurance that pays a cash lump sum upon death of the person insured.

The amount paid is agreed to at the time a policy is taken out and normally involves a sum which relates to the value of the risk it is covering – namely any liabilities and the income generating potential that your life represents.

Similar to car or home insurance, term life insurance works on a ‘pay as you go’ system, whereby cover continues as long as premiums continue to be paid and will lapse if premiums cease. There is no investment or savings element to term life insurance - you are only paying to cover the insured event (your death), making it a highly cost efficient way of securing the financial position of your dependents.

Why Do I Need Life Insurance?

Nothing could be more dramatic or emotionally devastating to a family than to lose a loved one prematurely. And while the emotional impact is overwhelming, the impact on finances can be equally as dramatic. A way of understanding the magnitude of the risks involved is to consider how much you earn a year and multiply it by the number of years to your retirement. 

The amount is probably staggering, and will be even greater with inflation and other income increases. The sheer size of the amount can often deter people from giving it serious consideration, but ignoring it means that you have made a decision to live with the risk. Term life insurance, therefore, is not just a lump of cash, it represents food on the table, a comfortable home, a school of choice for your kids, a reliable car – everything that makes up your lifestyle.

The alternatives to properly insuring your life may be either inadequate or impractical. Saving to provide an emergency nest egg may not accumulate enough funds in time. Relying on Social Security will provide at best a basic survival income. Term life insurance may be the only efficient way of creating the ready funds to replace your ‘life value’.

Even if you are not an income earner, there may still be compelling reasons to consider term life insurance. A homemaker, for example, has a role that represents an enormous dollar value in terms of replacing what they do. As a full time carer for children and manager of a wide range of domestic duties, it would cost a significant sum each month to pay someone to carry out such responsibilities.

Who Will Receive The Money And What Are They Allowed To Do With It?

One of the great things about term life insurance issued by life insurance companies is that there are no strings attached to either its payment or its uses. The benefit paid (the life insurance claim) is of an agreed value and is paid in one lump sum to whoever is nominated on the policy. Typically in a family situation this is the spouse. The beneficiary is then free to invest or spend as they choose.

Funds are often used to pay out large debts such as a mortgage, and the balance invested to provide an ongoing income for the family.

Choosing A Policy

How Can I Tell If My Term Life Insurance Policy Is A Good One?

Apart from providing cover upon death, a good policy issued from an Australian life insurance company will also offer early payment upon diagnosis of a terminal illness. Check the policy you are considering to see if it includes this provision and under what terms such a benefit will be paid.

How Much Do I Need?

A proper assessment of your insurance needs is strongly advisable. This should be performed by a qualified financial adviser, we at xLife are able to provide this service. Your adviser will generally use a process which takes into account:

    * your debt reduction/needs
    * future provision for major purchases
    * future education expenses for children
    * ongoing income generation needs.

The relatively low cost of term life insurance means that a large sum insured can still be very affordable.

If You Need Help Finding The Right Life Insurance Policy…

…Or understanding what level of cover is right for you, xLife can help you. We compare 500+ policies from Australia’s top life insurance companies, giving you the most competitive quote without compromising on the quality of cover offered.

Contact xLife to find out more or to receive a free life insurance quote.

Disclaimer:

This article is not designed to provide personal financial or investment advice. The information provided is general in nature and does not take into account your particular investment objectives, financial situation or investment needs. We recommend that you speak to an xLife specialist financial Adviser before you make any decision regarding Life Insurance, Total Permanent Disability (TPD) Insurance, Trauma (critical illness) Insurance and Income Protection Insurance. The statistics and figures presented in this report are based upon historical data, obtained from external sources. There is no guarantee or suggestion that markets will behave as they have in the past. Future results will be affected by political & economic events. Information is not directed to any particular persons investment financial objectives. Therefore, you must seek advice tailored to your individual circumstances before making any specific decisions.