What is Life Insurance?
Nobody wants to think about not being around for their family, however life insurance is an important consideration no matter your age. So, what is life insurance? If something happened to you, life insurance can give you some peace of mind that your family would be looked after. It’s not morbid to think about life insurance – it makes sense to plan ahead.
Losing a loved one is a traumatic time for anybody, but with life insurance you can at least be sure your family’s finances are protected. Life insurance is paid in a lump sum if you die or become permanently incapacitated. Here’s a few of the things your family could use a life insurance payout for:
- School expenses for your children
- Mortgage or rent costs
- Funeral costs
- Clearing loans or debts
- Everyday living expenses
- Putting money aside for your children
Emotionally, death or illness can have a terrible effect on families. You can be sure your family is looked after financially when you have life insurance.
Different Kinds of Life Insurance
First of all, there’s many types of life insurance, and while nobody wants to plan for the worst, it’s something we all need to think about. To ensure you’re taking out the right kind of life insurance, lets take a look at the different variations.
What is Life Insurance?
What is life insurance? ‘Death cover’ is another name for life insurance. You can purchase a life insurance policy which will pay an agreed lump-sum should you pass away. Essentially, it is designed to replace the income you would have earned. Therefore if you’re gone, your family can still meet their financial obligations.
The amount of life insurance you purchase will depend on your individual circumstances. If you already own your home, you may need less than someone who still has a mortgage. Likewise if your family has considerable debts or loans, you may want your life insurance to cover those cost in full. Life insurance can give your family the chance to grieve without worrying about how they’re going to pay the bills.
Up to 75% of your income is covered by income protection if you’re injured or unable to work. Income protection is usually paid in monthly instalments. It helps you maintain your financial obligations if you can’t work for a period, hence taking unnecessary pressure off your family.
Total Permanent Disablement (TPD) Insurance
Unlike income protection, TPD insurance is paid in a lump sum. While Income Protection covers part of your income for a specified period, TPD insurance is slightly different. You would receive a payout if you were totally and permanently unable to return to your usual occupation (or any occupation) due to serious illness or injury.
TPD insurance doesn’t cover pre-existing medical conditions, and different insurers will have different rules. Therefore, make sure you understand what you’re covered for before you sign up.
Trauma insurance will give you a lump sum payout if you suffer a serious medical issue. It is separate to TPD cover and income protection. One of the reasons people choose trauma cover is because their health insurance doesn’t cover certain serious illnesses.
As a lump sum payout, you could use it for any of the following:
- Medical expenses
- Education for your children
- Mortgage or rent payments while you’re ill
- Paying off loans or debts
- Managing everyday expenses.
Trauma insurance may cover illnesses such as:
- Heart disease
- Nervous system diseases
Finally, check with your insurer what events they cover. Most insurers list over 50 types of illness that they will pay trauma insurance for.
Key Man Insurance
Business owners rather than individuals often take out key man insurance. A business owner is essentially insuring against the death of a person who is integral to the company. This could be a high-level executive, partner, or someone who the business relies heavily upon.
Depending on the size of the business, the amount of cover will vary. If a key person dies, a lump sum will help manage the lack of productivity. It can also offset the costs of training a replacement, or allowing one partner to buy the other’s share if they passed away.
Does My Health Affect My Life Insurance?
Your health can affect your eligibility for life insurance, but not as much as people think. If you have a pre-existing medical condition there are two ways you might be able to handle it.
- Pay a higher premium.
- Accept an ‘exclusion’, where the insurer won’t pay out if your pre-existing condition is the cause of death.
What Amount of Life Insurance Should I Purchase?
The amount of life insurance you purchase will vary depending on your personal circumstances. It’s difficult to work out how much you need, because you can’t predict when you’ll die. Many people think about their family’s annual expenses, and aim to cover them for a certain number of years. Other factors like whether you already own your home may come into play. If you have a large mortgage and other debts, you may want higher cover to ensure your family can clear those debts in the event of your passing.
While we can’t predict when a death may occur, it’s important you feel comfortable with your cover. If you’re relatively healthy and have a good lifestyle, you may expect to live into old age and therefore have lower cover. Accidents and illness can strike anybody though, so be sensible when choosing an amount of cover to protect your family.
How Do I Compare Life Insurance?
‘What is life insurance?’ you asked. Hopefully now you understand the basics. The next question is how to get the best deal. Billy Sumo has you covered there. Click here to let Billy take the hard work out of comparing and finding the best life insurance for you from our panel of Life Insurance providers.