If you’re not really sure what life insurance is or why you need it, you’re not alone. A new survey has found that just 22.7% of Australians understand their life insurance policy inside out when it comes to the events they are actually covered for, while 39.7% don’t even know how much they’re paying each week on life insurance.
Life insurance expert and publisher of LifeInsuranceFinder.com.au Fred Schebesta explains all the benefits – and traps – of life insurance.
1. Assuming that the cover in your super is enough
Most funds will only offer a limited default level of cover as your employer has to offer you the minimum which can be as low as $50 000 and might not be enough to cover your financial obligations. For instance, an Aussie with a $400,000 mortgage over 30 years, an $8,250 funeral expense* and two dependent children under the age of 10 will leave a huge gap for your family to fill if you only have the bare minimum in your superfund. Reviewing what you are entitled to from your super and considering more comprehensive standalone plans is the best way to ensure you have adequate cover.
2. Rushing into your decision
Not all of us have the knowledge, experience or confidence to know exactly what is best for us in terms of insurance. However, many people who are uncertain about their insurance needs still go ahead and sign up to what they hope will be the right plan. This can be a costly mistake. If you are uncertain about what your insurance needs are and how to find the most suitable product, it is worth doing your research online or speaking to a financial expert. In the long run, this will save you a lot of hassle and wasted premiums.
3. Failing to review your policy after a change in your life
Once you take out a life insurance policy it’s imperative to make the effort to review it on a regular basis. Your circumstances will change, therefore reassessing your policy is fundamental to ensure the level of coverage is still adequate and relevant to your needs. For example, the birth of a child or purchase of a new home may be key times to consider taking out more cover.
By comparison, you may discover that you are over insured and there is an opportunity to reduce your cover and cut your premium costs. A reduction in financial obligations may lead you to switch to a more appropriate policy that will give adequate cover and keep some extra change in the pocket.
4. Only looking into a policy after you discover a complication
A common mistake that many Aussies make is waiting for an unfortunate change to their personal health before considering life insurance. For instance, with certain policies a claim won’t be paid if there is a pre-existing medical condition two years before the policy commencement date.
5. Not being upfront
Make sure you disclose all relevant information to avoid your claim being refused. If you are dishonest in your application and the information withheld would have resulted in a rejected policy initially, the insurer can entirely void the contract within three years of application or greatly reduce the benefit that is payable, causing great strain to your family finances.
“If the idea of researching life insurance on your own seems overwhelming or confusing, ask for help from an experienced insurance broker. A life insurance expert can assist you in finding the right insurance solution to suit your needs and budget,” says Mr. Schebesta.