What is Life Cover?
Life Cover, also known as ‘Death Cover’ pays a lump sum amount of money when you die. The funds go to the people you nominate as beneficiaries on the policy. If you have not named a beneficiary, the trustee of your estate decides where the money will go. Life Cover can be either ‘Term’ (a set cover period e.g. until age 75) or ‘Whole’ of life.
Life cover provides protection for your loved ones when you die and can help them to pay things like existing debt obligations and living expenses. Every policy is different so always read the Product Disclosure Statement (PDS) to understand what is covered.
Some Life Cover policies may also come with terminal illness cover which pays a lump sum if you are diagnosed with a terminal illness.
Do you need Life Cover?
You may want to consider Life Cover if you have a partner or dependents. To decide how much life cover you would need, think about the amount of money your family would need to pay the following upon your death:
- Debt obligations (mortgage, personal loans, credit cards, etc.)
- Child-care
- School fees
- Ongoing living expenses.
Then, consider how much they would receive from your super, savings and support from family members. The difference will help you determine how much you may need.
Packaged Insurance
Life Cover can be purchased on its own (stand-alone) or packaged with Trauma, TPD or Income Protection Insurance. If it’s packaged, your Life Cover payout may be reduced by any amount paid on other claims in the package. Always check the PDS for the details of your policy.
Premiums
Generally, you can choose to pay for Life Cover with either stepped or level premiums. Your choice of premiums has a significant impact on how much your premiums will cost now and in the future.
- Stepped Premiums: These are recalculated at each policy renewal. These usually increase each step period based on your age. When taking out a policy, you usually have the option to set the stepped frequencies (eg. Stepped every 1, 3, 5 years).
- Level Premiums: These generally charge a higher premium at the start of the policy, but changes are not based on your age so cost increases happen more slowly over time.
Considerations
It’s important to consider the following when choosing Life Cover:
- Benefits & policy features
- Exclusions/limits
- Waiting periods before you can claim
- The cost of premiums – now and in the future
- Tax deductibility – if cover is held within superannuation, these premiums are tax deductible against the fund’s income. If held personally, they are not.
- Underwriting – Life Cover held personally, rather than within super, will generally involve a more detailed process when assessing your medical condition. For example, they may require you to complete a medical examination or ask for medical records.
Getting Insured
Your insurer will need to know anything that could affect their decision to insure you when you apply, renew or change your level of cover. Insurers usually ask for information about your age, job, medical history, family medical history and lifestyle.
Insurance through super
Check if you already hold Life Cover through super. Most super funds offer default Life Cover, and you can increase your level of cover through your super fund if needed.
