Life insurance is a must for working adults due to a few reasons such as; these plans protect the policy holder and his family when there is a financial crisis and when the family needs help.
Most people who want to purchase life insurance plans such as term life insurance or income protection insurance often wonder how much cover do I need and why? This article will aim to answer many questions that you have about purchasing life insurance covers.
How Much Cover Do I Need for Term Death Plans?
- Term death plans protect your family when you are no longer there to support them. These plans pay out one lump sum payment to your family or chosen beneficiaries of the estate after a life cover claim has been filed. The amount of compensation your family will get will depend on the cover you select when you purchase a policy. Due to this reason; it is important to purchase the highest level of cover you can afford. While many people may believe that covers above $50,000 are not needed for small families, the truth is that inflation is a threat to today’s families hence the cover you purchase should keep inflation in mind. In addition, your family’s lifestyle along with their needs should be noted before you purchase a cover.
- Funeral insurance plans are offered as an add on option with death cover plans. Funeral insurance plans usually offer a onetime lump sum compensation payment of $10,000 – $20,000 to the beneficiaries of the policy when a claim is filed. A claim can only be file when the policy holder passes away due to natural causes, an accident or illness. Funeral claims are usually paid out in 24 – 48 hours and the amount received from the insurer can be used to pay for funeral expenses. The cost for funeral insurance is only a few dollars every month; but the benefit received is significant especially since this benefit can prevent a grieving family from having to worry about funeral expenses.
How Much Cover Do I Need for Income Protection Plans?
- Income insurance plans offer a maximum of 75% of your annual pre-tax income towards monthly payouts. Policies that offer 60-75% of your salary may be expensive but usually offer comprehensive benefits. Some insurers may offer an additional 8-9% superannuation compensation payments if you are eligible. Additional perks are included in comprehensive plans and can be purchased in addition to basic plans. The amount of cover you need will depend on your lifestyle, your needs and if you have dependants or not. If you do not have health insurance, if you have debts or other financial commitments then you should purchase the best cover that you can afford.
- Indemnity contracts are the more affordable option for employees of companies however; these types of contracts are not ideal for self-employed professionals who do not earn a steady amount of income every year. Self employed professionals who are likely to earn varying amounts of income every year must consider opting for an agreed value contract with flexible terms.
- Many insurers that offer comprehensive income insurance plans offer three or more add on perks such as the 24 hour worldwide cover, the indexation benefit, the day one claim or day one accident benefit and the transplant surgery benefit. Before purchasing benefits, find out the limitations of the benefits if any and only purchase those additional paid benefits that you will see yourself using.
How Can I Ensure that I Get the Maximum Cover in my Budget?
The only way to do this is to take some time to understand your needs and to compare policies before you make a purchase. Since Australian insurers offer competitively priced covers; buyers may feel that comparing plans is of no use; however the truth is that comparing plans not only lets you understand the cover limit, but also the limitations of the plan if any. While comparing plans you should also make it a point to check the waiting period of the plan and the benefit period in case of income insurance plans.
3 Things to Keep in Mind While Choosing a Cover
- Life insurance plans that are offered under super funds have various benefits such as a shorter waiting period, a longer benefit period and additional perks; however super funds usually have their own set of eligibility criteria for these plans. Before purchasing an insurance plan through a super fund, ensure that you know about these eligibility criteria and have enquired about the tax implications of opting for an insurance plan from a super fund.
- Purchasing an income cover or death cover with the highest cover limit is beneficial only when you or your family can get the benefits that you opt for. Hence, before purchasing a plan with the highest limit, make sure that you can afford it. Talking to a financial advisor and insurance agent is always a good move before purchasing a plan with a higher cover limit. Remember, some insurers may offer schemes that offer discounts to buyers who opt for high cover limits while other insurers may offer a premium payment discount to buyers who pay yearly premiums in advance. These schemes and promotions can make purchasing an insurance plan more affordable.
- Death covers and income insurance plans have a minimum waiting period which implies that the policy holder has wait for 30, 60, 90, 120 or the selected number of days before he can file a claim. Any claims that are filed when the waiting period is active will not be paid by the insurer. Income insurance plans may include a day one claim benefit or day one accident benefit that allows the policy holder to file a claim for accidents before the waiting period is over. With basic contracts, this benefit may be offered for an additional fee and at the time of purchasing the contract the buyer can decide if he wants to enjoy this beneficial perk or not.