Opinion
For real life: The insurance you might have without knowing
Dominic Powell
Money EditorReal Money, a free weekly newsletter giving expert tips on how to save, invest and make the most of your money, is sent every Sunday. You’re reading an excerpt − sign up to get the whole newsletter in your inbox.
In the wide world of insurance (boy what an exciting start), there’s seemingly an infinite number of options when it comes to things you might need to get insured. Some make sense, like your car/house/boat/dog, and some make less sense, like wedding insurance or meteor impact insurance.
However, there’s one type of fairly common insurance that I’ve always thought sounded a bit sus: life insurance. Taking it on face value, it has always seemed a bit strange to me that you can insure your life, as once your life ends and the insurance policy kicks in, what use do you have for the money?
If you have more than $6000 in your superannuation account and are over 25, it will likely include basic life insurance.Credit: Aresna Villanueva
Obviously, there’s a lot of other aspects and factors to life insurance that can make it a valid option for many. And indeed, it’s relatively popular among Australians; in fact, roughly half of us hold some form of life insurance policy.
However, the majority of superannuation funds in Australia offer their members a form of life insurance, provided you’re over the age of 25 and your account balance is higher than $6000. Super funds typically offer flat life insurance (paid to your beneficiaries on your death), total and permanent disability (TPD) insurance, and income insurance.
Keep in mind these aren’t free – the premiums come out of your super, starting at a few dollars a week when you’re young and scaling up as you age.
What’s the problem?
Considering anyone with a super account (with enough money in it) gets a basic form of life insurance, it might be hard to see why it’s worth taking out any additional policies. However, there can be some scenarios where it can make a lot of sense.
What you can do about it
If you’re curious about whether it’s worth taking out an additional life insurance policy, read on:
- Change your thinking: Although it can be a bit weird thinking about life insurance as being sensible, given it relies on you, you know, being dead, Dawn Thomas, senior financial adviser at The Wealth Designers, says it’s better to think about life insurance in a more wholesome way. “Life insurance is for the people you leave behind, to ensure they are not with financial chaos,” she says. “For example, if you are a member of a couple, and you have children, having life insurance can ensure that your partner and children can keep the family home, still have education costs covered and have enough income to maintain a similar lifestyle.”
- When do I need it? Despite the name, life insurance isn’t something you need for your whole life. For those without dependents, it’s probably safe to rely on the cover from your super. However, Konara Gena, a financial counsellor at the Financial Rights Legal Centre, says once you hit midlife it might be time to think carefully about getting an additional policy. “Life insurance is generally a good safety net during early income producing years, especially when there are low superannuation balances, high levels of personal debts, dependants and assets like a home to protect,” Gena says. As you get older and your number of dependents reduces, and your income becomes more stable, life insurance becomes less sensible. Older customers can also pay much higher premiums, as their risk of disability or death can be higher.
- What to look out for: Thomas says if you’re in the market for a life insurance policy, there can be some things to beware of. Accident only policies can appear much cheaper, but will only cover you if your death was accidental, she says. It’s also important to look at an insurance provider’s average claims time to ensure your loved ones aren’t left in the lurch for too long. For those opting to rely on their super insurance cover, Thomas warns any benefit will be paid out as per your superannuation beneficiary set up, that is, at the discretion of the super fund trustee, unless you have a valid binding death nomination in place. If it all seems too complex, there are financial advisers who specialise in life cover and can help you out.
Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.