How Does Life Insurance Cover Work?

If you’re in the market for life insurance cover, you’re one of the smart ones! According to a 2013 survey, a growing number of Australians are underinsured, or uninsured altogether. So, if you don’t know how everything works, you’re not alone. Life insurance cover can be tricky, so let’s go over the basics…

First things first, there are four different types of life insurance cover in Australia:

1. Term life insurance
This is what you normally think of when you think of “life insurance”. This policy pays out a lump sum after you die. Your benefits may also kick in if you’re diagnosed with a terminal illness and likely to die within 12 months.

2. Total and Permanent Disability insurance
Also known as TPD insurance, these benefits are paid to you in a lump sum if you suffer some type of permanent disability. You’ll likely have to be continuously disabled for a few months before your benefits kick in.

There are a few different types of TPD insurance, and you can select the type you want when you buy your policy. For example, you can get TPD insurance that covers you if you’re unable to do the same work you did before your illness or injury. Or, you can get TPD insurance that only pays you if you’re unable to do ANY kind of work.

 
3. Trauma insurance
One of these policies will pay you if you fall victim to certain critical medial issues — like a heart attack or cancer. Unlike traditional life insurance, you don’t have to die (or be expected to die soon) in order to receive these benefits. And, unlike TPD insurance, you don’t have to suffer permanent damage to qualify for these benefits.

Instead, trauma insurance is designed to help you pay your bills — like your rent or your car payment — while you recover. It can even pay your spouse an income if he has to take time off from work to take care of you.

Trauma insurance tends to cost more than traditional life insurance, which is why fewer Australians are taking advantage of it. Unfortunately, though, it’s estimated that 55,000 Australians suffer a heart attack every year, and another 125,000 are diagnosed with cancer! If you’re one of them, you’ll likely need some financial help, and that’s what trauma insurance was created to do.

4. Income protection insurance
This life insurance option covers temporary illnesses and injuries. The average policy will pay you 75% of your salary until you can return to work. The premiums will cost you more than traditional life insurance, but luckily, the premiums for this type of insurance are tax deductible! (Unfortunately, the money you receive in benefits isn’t.)

OK, now that you know what your options are, how do you get the right life insurance cover for your needs?

Doing a life insurance comparison is the only way to ensure that you get the best deal. Luckily, it’s easy to compare different life insurance quotes online!

One thing you should lookout for during your comparison is the opportunity to “bundle” — or, to buy all of your life insurance cover from the same company. In return for bundling your policies, you’ll get a discount!

As you do your life insurance comparison, you’ll have to go through “underwriting”. This is the process that determines how much of a risk you are. For example, if you smoke, you’re more of a risk to your insurance company than a non-smoker is. Older people also come with higher risk than their younger counterparts. The more of a risk you’re determined to be, the more you’ll pay in premiums!

Think you can skip all of this because you’re not married with kids?

Think again!

Life insurance is crucial even if you’re single. After all, you’ll have debts and funeral expenses that your parents or siblings will have to pay for if you die. And, the other forms of life insurance cover will come in handy if you’re ever sick or injured.

Bottom line — EVERY Australian can benefit from life insurance!

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