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Life Insurance
“Arguably, there could be no more important asset than “your life” itself. I couldn’t imagine you buying a new car or house and not arranging comprehensive insurance yet too many people neglect to insure against their life”.
If the unthinkable happens, life insurance can ensure that your loved ones are catered for after you are gone by paying a death benefit to the beneficiary of the policy once the policyholder dies. Life
Insurance falls under the category of “protection” in the famous 6 Points to Financial Success. Whilst some people think life insurance is only important for the main income earner in a family, the person who takes care of the family is also a large contributor to the home so it wise for both spouses to look at life insurance.
For the sake of a relatively small premium (paid monthly or annually) you can have the peace of mind in knowing that you’ve (responsibly) considered the financial consequences of your death. The emotional loss will be difficult enough for loved ones to deal with let alone the financial loss. Generally speaking, the death benefit paid out is used to pay:
How else would your family get by?
It can be said that TPD bridges the gap between Income Protection Insurance (when you are ill or injured but expected to be able to return to work at some stage) and Life Insurance.
TPD pays you a lump sum if it is determined that you will not be able to work again. TPD is about ensuring that you retain as much quality of life as possible should you become totally and permanently disabled. The lump sum paid through the insurance may allow a family member to give up work to care for you or to fund home care. You determine how the funds are used.
FACTS:
“I’m too young to need to worry about life insurance...”, “I’m in good health...”, “It’s a waste of money...”
We’ve heard all of the excuses. How about a few facts to help communicate the importance of life insurance:
Upon determining that it is important that you need life insurance, it is for you to determine things like a) how much insurance do you need, and b) who will be the beneficiary of the policy upon your death.
6-Point Insurance will supply you with a quote so that you know the cost of your insurance premium for the amount of cover elected. You will also be supplied with the important Product Disclosure Statement (PDS) which contains details of the policy, along with other documentation.
The application for insurance is the not dissimilar to applying for other forms of insurance. 6-Point Insurance will assist you to complete the application form, but we are not authorised to supply you with advice. There is a general health questionnaire for you to complete (approximately 1 page) and it is critical that you disclose to the insurer every matter that you know, or could reasonably be expected to know, which is relevant to the insurer’s decision whether to accept the risk of the insurance and, if so, on what terms.
Your application is submitted to the insurer for one of their underwriters to assess. In most cases, the application is processed within 72 hours and the policy is then issued. In some cases, additional details about your medical history may be sort, including partaking in a medical examination (at the insurer’s cost).
There is no cost incurred by you at all with the application.
Subject to approval of your application and issuance of your policy, insurance premiums are then due annually. As with other forms of insurance, premiums are paid in advance and there is usually the option of paying monthly to suit your budget.
The cost of your insurance premium is determined by a number of factors, including, but not limited to:
Premium examples:
1) A 30 year old, male, plumber, in good health, requiring $700,000 in life insurance will pay an annual insurance premium of approximately $700. Put another way, for less than $60 per month this man has the peace of mind that, should he die, his $300,000 home loan would be repaid so that his wife no longer has a mortgage payment and she will have $400,000 left over which could be re-invested to produce an income for future living costs;
2) A 41 year old, female, high school teacher, in good health, requiring $600,000 in life insurance will pay an annual insurance premium of approximately $820. Upon receiving the death benefit, one option her husband may use is to pay off the $100,000 home loan and $500,000 investment home loan. He would then be debt free and the $450 per week rental income would be additional income to supplement the costs to raise, educate and care for his children.
Disclaimer:
These examples are approximate and may change from time to time. These examples should not be taken as advice supplied to people in a similar situation. The actual amount of your premium might change, depending on various factors and the terms and conditions of your policy. Life Insurance is available to approved customers only.
The examples include an indication of premium amount for Life Insurance only; Income protection is not included. 6-Point Insurance assists its customers to arrange insurance products in good faith but no advice is provided. Customers should seek their own independent advice as to amount of cover required, etc. Insurance premiums may be adversely affected due to applicant’s medical history.
Customers should obtain a copy of the relevant Product Disclosure Statement (PDS) relating to the product and consider the PDS before making any decision about whether to acquire the product.
The two (2) most important considerations in answering the question “How much life cover do I need?” Are: |
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A rule of thumb for determining the level of life insurance cover is to take the main income earner’s annual income and Alternatively, a more comprehensive calculation for you to complete is to think about: A. Funeral related expenses and legal expenses associated with finalising the Will / estate
B. Total value of mortgage debts
C. Add up the sum of the figures listed in item ‘A’ and ‘B’ above and record this figure here
D. Future (annual) living expenses (assuming you partner will be debt free) taking in to account: E. Any future passive (annual) net income from things like rent from investment properties (assuming mortgages have been repaid from as already accounted for at item ‘B’ above).
F. Subtract the figure you calculated at ‘E’ from the figure at ‘D’ above and record this figure here to calculate the total annual income which you think your spouse will need upon your death.
G. Multiply the figure you recorded at ‘F’ above by 100, then divide by 6 (vary as required) to record the total amount required to derive a 6% return. H. Now add the figures you recorded at ‘C’ and ‘G’ together to calculate total life insurance cover required.
6-Point Insurance is not authorised to arrange a life insurance policy for you for an amount greater than the current balance of all existing mortgage loans. For couples however, we can arrange a life insurance policy for each spouse for an amount up to the combined mortgage balances. |
This is an important decision for you to make and one in which 6-Point is not authorised to advise you on.
In a lot of cases, especially when the insured has children and / or is married (including serious defacto relationship) the insured party elects to nominate their spouse as the beneficiary. As at October 2008, if the beneficiary is a natural person and is living with the deceased at the time the death occurred then no tax is payable on the insurance lump sum payment; otherwise, it is taxed at 31%. **
** This information is supplied in good faith. Whilst care has been taken to ensure it is accurate it accepts no responsibility if proven otherwise. As always, it is advisable to get independent, professional advice; 6-Point Insurance does not supply advice.
The insurer needs to first establish proof of death so a death certificate will be required.
Claims are generally processed very quickly and paid to the nominated beneficiary.
When the insurance policy pays out, a key question will be to decide how the money should be used. Typically funeral expenses and debts will be paid and the balance invested to provide a replacement income for the family. The surviving partner will have to take responsibility for the financial management of the household and may need to take on extra work to make ends meet.
It’s a sad indictment of our times that so many people choose to be victims and think that suing another person or organisation for the smallest thing just to get some extra money is “their right”. As we are all now experiencing, this new custom is taking its toll on our community and the services upon which we rely such as health and volunteer services. Accordingly, the price of insurance is becoming a commodity that is becoming increasingly expensive.
People are discovering that, when the time has come to make a legitimate claim, they hadn’t given enough information when taking out the policy, which has severely hindered the payment of their claim. In an attempt to tighten the loopholes to ensure that claims are valid, insurance companies are now demanding that policies show full and complete details and that anything related to the insured or the type of cover is fully disclosed. In the past, many insurers have “worn it”, but this practice is tightening.
Our recommendation is to ensure that you have fully disclosed all information necessary when you take out an insurance policy. It might even be worth reviewing current policies that you might have taken out years ago to make sure they have recorded all of your details correctly. The time spent now might be worth it if you need to make a claim.
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