If you have people who rely on you, life insurance is most certainly a necessity. Life is unexpected and, should the worst happen to you, you need peace of mind that your family will be looked after.
Nobody likes to think about death, but when that time comes you need to make sure all that you’ve acquired over your lifetime will be protected and looked after.
Generally speaking, life insurance policies only cover the event of death itself. Should you pass unexpectedly, your family will be paid out in either one lump sum or with steady amounts over time. As well as ensuring your family are able to provide for themselves without you, life insurance is like having an umbrella for protection of the worst storm life has to offer.
Should you be in an accident, life insurance does not cover any disabilities or health concerns that arise from this. For extra protection, it is advised to take out a Total and Permanent Disability (TPD) policy.
TPD, has been subject to recent corporate watchdog and media investigations. Earlier this month, Westpac's life insurance arm, BT Financial Group, confessed that it 'had a denial rate of 37% on TPD claims'.
But Westpac aren’t the only one in the spotlight, Commonwealth Bank's life insurance arm was delaying and denying legitimate claims and then there was the National Australia Bank persistent bad behaviour in financial planning, and a one in 40 financial planners at ANZ with breach reports.
With one in three claims for TPD through BT Financial Group were denied, other companies had denial rates as low as 7%. With such a huge variation of claim acceptances between insurers, it certainly pays to review your policies on a regular basis and change insurers if you don’t feel you are adequately protected.
When it comes to TPD policies, it's all about choosing the right one.
How to select the right insurance policy and provider
When deciding whether or not you need TPD insurance, it's important to consider your level of private health care insurance, the income your family will have without you working and what government benefits are available for you.
If you've decided to go ahead with TPD cover, it's important to choose what kind of cover is best suited to you and your lifestyle and budget. You may be able to choose between stepped or level premiums.
Stepped premiums
Your insurance premium will increase each year as you get older but is usually cheaper in the beginning. If you're thinking about this option, it is worth looking at what the premiums will be over the next 5 years, or however long you intend to hold the insurance for, to make sure you can afford the premiums.
Level premiums
Your insurance premium does not change due to your age but is generally more expensive than a stepped premium in the beginning. Level premiums may increase over time due to inflation adjustments or changes to the insurer's fees.
Things to review before signing up
- Discuss it with your family
- Don't only insure the highest income earner in your household
- Be realistic about how much cover you need
- Decide whether you want stepped or level premiums
- Read the product disclosure statement (PDS) to find the benefits and any limitations on your cover
- Research the insurance provider and identify any regulatory issues
- Compare costs with at least two other insurers but make sure they are like-for-like policies
- Check if your product is inflation-indexed so your cover keeps up with the cost of living.
Life insurance policies should be reviewed at certain times of important change in your life. This includes when you get married, or when you have children.
When searching for life insurance policies, it is important to shop around for the policy that best suits you and your family's circumstances. Keep in mind that insurance can be offered by your superannuation provider or you may be able to receive cheaper repayments by taking out a policy from your home or health insurance provider.
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