We insure our homes, our cars, or health, but too often those closest to us are forgotten. Life insurance is not hard to understand, quite simply a lump sum amount is paid out in the event of your death.Of course, you can take the attitude that nothing will happen to you, and mostly likely it won’t. But what if it does? How would your family survive? What does it cost to protect them? Surprisingly little, all things considered.
What is Term Life Insurance?
It pays an agreed lump sum of money in the event of your death or terminal illness (ie an illness from which you are expected to die within 12 months [according to a medical practitioner], thereby allowing for an advance payment). Most policies can be renewed up to age 99. The only exclusion on the policies is death due to suicide in the first 13 months.
In the event of your death, your family can use the lump sum payment from life insurance to:
- Pay off debts
- Provide an income to maintain their lifestyle and achieve their financial goals
How Much Life Insurance Do I Need?
When considering how much life insurance it is important you choose the right level of cover for you and your family’s needs. Think about your financial commitments and how long they last, taking into account the following factors:
- Any debts you have
- Your children’s future education costs
- How much an ongoing income stream would cost
- Providing for any major future purchases
Term Life Insurance as a stand alone product is often surprisingly affordable and provide you and your family with peace of mind. It is common for people to establish life insurance equal to 10 times their salary.
How much does term life insurance cost?
Premiums are calculated on your:
- Age (premiums may increase or decrease as you get older)
- Gender (women generally live longer than men so pay lower premiums)
- Whether or not you smoke
Term Life Insurance Options
Most Life Insurance policies provide the option of including Total & Permanent Disablement (TPD) and Trauma Cover. These can usually be taken as a linked or standalone additions.
Tax Implications
Life Insurance premiums are generally not tax deductible, however this also means that the benefits from a Life Insurance policy are generally also tax free (non-superannuation).
Term Life Insurance Tips
Do not confuse Life Insurance with ‘accidental death’ insurance. Life Insurance will provide a payment regardless of the method of death (except suicide in the first 13 months). Accidental death, while offering significantly lower premiums offer very limited protection.
