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The Beginner’s Guide to Life Insurance

If you are new to life insurance, you’ll want to understand what it covers, how it works, and why you need it. To help you understand, we have put together this guide so you can make an informed decision when choosing the right life insurance product.

What’s life insurance?

Life insurance is an umbrella term for a range of insurance products that pay your beneficiaries a given amount in the event you’re seriously injured or ill, or you pass away.1 As with any type of insurance, you pay a periodic premium to stay covered. Depending on the insurer and policy you choose, you can keep your cover for life as long as your premiums are paid on time.

Thinking about life’s risks and uncertainties is never easy, but the good thing is the right type of life insurance product can help you protect your family, especially your loved ones in the event something happens to you. Life insurance offers a way to manage life’s inherent risks.

What are the types of life insurance?

The term life insurance is used to refer to a range of product types. With Real Insurance, you can have Family Life Cover and Accidental Death & Serious Injury Cover, as well as optional add-ons such as Serious Illness Insurance, Total & Permanent Disability Insurance, Accidental Death Insurance, and Children’s Insurance to ensure you get the level of cover that’s right for you.

Family Life Cover

Family Life cover is also known as term life insurance or death cover, and it works by paying out a specified amount to your beneficiaries if you pass away or become terminally ill.1

Accidental Death & Serious Injury Cover

If you pass away or are seriously injured in an accident, this type of cover pays you or your loved ones a cash payout.

Serious Illness Insurance

Serious Illness Insurance is designed to help you with a benefit if you become diagnosed with a specified Serious Illness. This type of insurance pays you or your loved ones a lump sum, which can be used to pay for anything from rehabilitation costs to living expenses.

Total & Permanent Disability Insurance (TPD)

This type of insurance pays you a lump sum if you become permanently disabled due to illness or injury.

Children’s Insurance

This optional benefit offers a financial helping hand should your child suffer a specified serious illness or injury, or pass away as the result of an Accident. The lump sum payment can be used to help cover medical expenses and school tuition.

Do you need life insurance?

According to recent research, almost nine out of 10 Australian parents believe life insurance is important and it provides peace of mind, yet 38 per cent of Aussie families don’t have life insurance and around one in four don’t believe they have enough.2 We seem to recognise life’s uncertainties and are aware of possible risks to our family if anything happens to us. If you have outstanding debts or if you’re not financially secure, your children and partner could be exposed to financial hardship if they were to lose you.

Consider how much income your family would need to maintain current living standards and other factors such as child-care costs, education costs, and mortgage repayments. Life insurance is a way to ensure your loved ones and partner will be provided for if anything happens to you.

What are the eligibility requirements?

Eligibility requirements may vary depending on the specific policy type, but generally you’ll need to be within a certain age range (e.g. 18 to 64) to obtain life insurance. In some cases, you may not even need to have a medical check done, as long as you’re able to answer some basic lifestyle and health questions.

What are the exclusions and waiting periods?

Exclusions can vary depending on the cover, for example, Real Family Life Cover has common exclusion such as death from suicide or intentional self-injury within the first thirteen months of the policy. Exclusions could also vary depending on your answers to health and lifestyle questions when you sign up for a policy. Check the relevant product disclosure statement to find out more.

How much life insurance do I need?

This depends on your current financial situation and lifestyle. For example, if you have a substantial amount of debt, you may want to maximise your benefit amount. Calculate how much money your family would need if the worst were to happen. Take into account the size of your mortgage and any other debts, as well as childcare, education and other recurring bills.3

Am I only covered if I’m in Australia?

With Real Family Life Cover, you will be covered when you’re overseas if you are a resident of Australia. However, check your policy for specific terms and conditions to make sure you’re covered where you want to be covered.

Can I claim a tax deduction for the premiums?

Usually you’re unable to claim a tax deduction for life cover, TPD, accidental death, or serious injury insurance. However, the Australian Taxation Office will generally allow you to claim for income protection insurance premiums.4 Life insurance benefits paid out are usually not subject to income tax (although income protection insurance benefits are4), but check with your tax advisor to make sure.

How do I get the most out of my policy?

Choosing the right life insurance product doesn’t have to be complicated, but you do need to take time to understand what you’re getting.

Optional extras

Consider whether optional extras like Serious Illness Insurance can help you get the right level of cover.

Guaranteed renewable

Make sure your policy is guaranteed renewable so the insurance provider can’t cancel your policy due to health, age, or lifestyle factors.

Understand your limits

Understand your policy, including its limits, waiting lists, exclusions, and other terms and conditions.

Inflation-indexed products

Make sure your policy is inflation indexed so your cover is in line with changing costs of living.1 For example, your policy may increase by a given percentage a year to keep up with inflation.

Thinking about the unexpected things that could happen in life is never easy, but planning for them can help you and your family reduce the impact of risks. Life insurance offers a way to protect your loved ones from hardship if anything should happen to you.

Real Insurance offers award-winning and affordable life insurance products, from Income Protection Insurance to Accidental Death & Serious Injury Insurance. To find out more about our products, contact us today or request a quick quote online.


References

  1. Life coverASIC‘s MoneySmart
  2. Underinsurance: survey finds 38 per cent of families have no life insuranceThe Sydney Morning Herald
  3. Life insuranceASIC‘s MoneySmart
  4. Income protection insuranceAustralian Taxation Office

This is general information only and does not take into account your personal objectives, financial situation or needs. You should consider the relevant PDS available on this website prior to purchasing any product.

Real Insurance is an award-winning provider of life insurance.

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