Life Insurance FAQ
What does life insurance cover?
If you were to pass away life insurance pays a lump sum to your beneficiaries. In Australia life insurance is often called term life insurance because you are covered during the term of your policy (while you are still paying premiums). Whilst covering death is the primary benefit of life insurance, the retail insurance policies that are on our approved product list also have additional benefits. All policies have a terminal illness benefit where if you are diagnosed with a terminal illness with less than 12 months to live then the policy pays out immediately. Similarly, policies also come with a built-in funeral benefit, that may vary from policy to policy, but is typically has a minimum amount of $10,000.
Life insurance policies in Australia are not a savings plan which were known as whole of life policies and were phased out in the early 1990s. You simply pay for premiums to be covered like you would with any other types of insurance like car or home. Once you stop paying you are no longer covered. The retail providers on our panel all are guaranteed to renew your policy if you wish to keep paying your premiums (until the age of 99). You can cancel at any time though.
What is the spotter life service involve?
We have helped thousands of Australians with life insurance inquiries. The spotter life service is free to use. We can provide a quote from 9 leading retail insurance companies in Australia and help you arrange life cover. If you are looking to proceed the application is done over the phone and typically there are no medicals and forms to fill in. We cannot provide you any personal advice, but if you are seeking personal advice, we can refer you to a specialist if you desire.
Why do you need life cover insurance?
Life insurance helps to protect the life insured’s family. In the event of death or terminal illness, a lump sum is provided, which may be used to help with the following:
- Pay final expenses
- Cover children’s expenses including educational costs
- To help replace spousal income to meet the family income needs
- To pay off debts such has mortgages, credit cards or other loans
- Life cover – LEVEL OR STEPPED PREMIUM
With life insurance, there are not many policy options to choose from (unlike other forms of cover). One option is whether you wish to have stepped or levelled premiums. Stepped premiums increase with age while level premiums lock in your premium at today’s age, although prices will increase with inflation and overall product price increases. If you choose a stepped option, you pay less today but over time your policy will increase as you get older. If you choose a level option, you pay more today to lock in your age. The cost savings for taking out a level premium could be significant if you hold the policy for a long period, especially if you are younger. For example, a 35-year-old, non-smoker male who takes out $500,000 in cover and holds the policy to age 65 could pay an estimated $19,374 under a level premium and $60,551 if choosing a stepped premium. The difference is over $30,000 in this example.
If you choose a level premium it’s typically only fixed at level until age 65 or 70, depending which option you choose at inception. After the level component expires the policy reverts to stepped.
Life insurance inside or outside of super
For life insurance, you can choose to have the cover paid inside or outside of superannuation. More than 70% of Australians that have life insurance hold it through super.
Most super funds allow for a wide range of insurance providers these days, and we often setup insurance through superannuation using the product providers on our panel by what is known as a “partial rollover”, which allows an annual amount to be debited from your super to pay the insurance company. If you pay inside super, this will affect your retirement savings, but will free up disposable income.
If you pay through superannuation, there is often a 15% tax advantage in doing soii, there is no tax discount if you pay outside of super. In addition to this, paying by partial rollover attracts a 7 to 9% annual discount depending on insurance company (although you can choose to pay upfront outside of super as well and get the discount). There can be tax implications levied upon your beneficiaries, if you hold your policy through super, when they receive the claim if the beneficiary is a non-dependent. A spouse or children under the age of 18 are generally automatically considered as dependants, and there are no tax implications.
Who gets my life cover payout?
When you sign up to life insurance cover you are requested to nominate beneficiaries. Typically, an application can have up to 10 beneficiaries and you can set percentages for each beneficiary. Your beneficiaries could be anyone, but are often spouses, children or other close family members. You should consider estate planning when it comes to considering how you would like your assets distributed in accordance with your will. If you don’t have a nominated beneficiary, then your benefits often get paid to the estate for distribution.
How much life cover do i need?
The amount of life insurance cover will vary upon your individual circumstance. As are general advice company we cannot advise you on this. There are lots of available tools that can provide you a guide. For example, the Australian Government provides this Life Insurance Calculator that may provide a helpful guide to you. If you are still in doubt, we can refer you to a financial planner upon request.
How much does life insurance cost per month in Australia?
Unfortunately, there is no simple answer to that question. The cost of life insurance depends on a number of factors. these are just a few.
- Your age – as you get older you pay more for life insurance
- Your gender – this is based on life expectancy estimates and males typically pay more for life insurance
- Are you smoker or non-smoker – smokers pay more for life insurance
- What amount of insurance do you need – the higher the cover amounts the more you pay
- What is your health like – if you have serious health conditions you may pay a policy loading or in extreme cases not offered cover at all.