Introduction to Life Insurance
Congratulations on taking the first step towards protecting what's precious to you.
Life insurance is a topic most of us don’t want to think about, but the reality is that life is unpredictable, with many twists and turns. When you work so hard to create a lifestyle for you and your loved ones, it's important you do everything you can to protect it, for your sake and for theirs. They are, after all, the most precious thing in your world.
Having made the decision to find out more about life insurance, you may have a lot of questions and pre-conceived ideas about what life insurance is and isn't.
To help you get started - and to make it as easy as possible to get you and your loved ones protected - we've put together a list of some of the more common questions you may have.
Most of us think about life insurance as just death cover, but in reality there are many other illness and injury related risks we face as individuals, ranging from minor conditions that leave us unable to work for a few weeks or months, through to major health traumas such as heart attack, cancer and stroke, or disablement so severe you are unable to work ever again.
Life insurance generally falls into a few simple categories:
|Type of cover||Payment||Purpose|
(including terminal illness)
|Lump sum||More comprehensive cover to pay debts and protect lifestyle of those left behind|
Which leaves the life insured permanently unable to work
|Lump sum||Helps you pay debts, replace the permanently lost income of the life insured, pay for extra medical and other care expenses, protect lifestyle of loved ones|
Diagnosis or occurrence of a specific injury or illness
|Lump sum||Helps pay for unexpected medical & professional care costs, lifestyle changes or repayment of debts|
Loss of income (up to 75%) due to sickness or injury
|Monthly benefit||Helps you replace lost income as a result of being unable to work|
Whilst only a professional financial adviser can tell you whether you need life insurance - and what type and how much - it is highly likely that if your income is vital in supporting your lifestyle (regardless of whether you are single or married, or whether you have a family) you probably have risks you should protect against.
What isn't in doubt is that illness and injury - and worse - can and does happen to people of all ages and fitness levels, every day. Consider the statistics contained in the What are the odds? Fact sheet (pdf 616Kb).
And with research suggesting most people could only survive a month if they were forced to rely on their savings, even a minor condition such as glandular fever or a broken arm could be financially devastating if it means you can’t pay your rent or mortgage, put food on the table or petrol in the car, pay the credit cards off or meet the myriad other expenses of everyday living.
There are many common misconceptions around life insurance, including the belief that should anything happen to you, you will be protected by your superannuation fund, or workers compensation, or Centrelink. The truth is that for many people, even if you are eligible for these 'safety nets' (and many people aren't), the protection offered is minimal and not adequate to maintain their lifestyle.
Only a professional financial adviser can advise you on the appropriate type and amount of cover for your unique circumstances. However, there are a few rules of thumb that you can use to get an idea.
In terms of protecting your income, think about your weekly or monthly living expenses and how long you could survive if you were no long being paid. Do you have savings you can easily dip into? How long before you would need to sell assets or call upon friends or family for assistance?
In terms of life cover you need to consider the debts (mortgage and other loans) that would need settling if you were no longer around, plus amount needed to generate an ongoing income to maintain the lifestyle of those you leave behind.
Once you have determined your total protection needs you then need to work out whether you already have any cover in place and whether there is any gap that you need to close.
There are many simple online calculators that can help you with this process, including the life insurance calculator provided by Lifewise, a life insurance industry initiative designed to help Australians get a better understanding of their life insurance needs and help them navigate the steps of a process that can be confusing to many.
Life insurance is probably more affordable than you think, and it's likely to be better value than you think, especially when you consider how much you pay to insure your car and home versus the potential amounts at stake.
You have probably seen the advertising that says you can be covered for less than a cup of coffee per day; whilst everyone's circumstances are different (the cost of cover depends on many factors, including the amount and type of cover, your age and state of health), it is true that a 35 year old non-smoking male can generally obtain around $500,000 of death and terminal illness cover for $35.001 per month ($30 per month for females).
Similarly the cost of income protection cover depends on many factors, including your occupation and waiting period, but it will generally be around 2-3% of the income you are protecting2 (income protection premiums are generally tax deductible, making the cost even more affordable).
Of course these are just guides. For an accurate estimate of the cost for the type and amount of cover you need, get a quote from a financial adviser or direct from Zurich, if you want to do it yourself online.
1 Based on Ezicover term life rates, current as at 4 April 2014
2 For sample calculations, refer to the Zurich Australia brochure What would happen if your income stopped? (pdf 489Kb)
If you are an employee, you may have some sort of default insurance cover that you were granted automatically upon joining the fund.
Typically the cover amount is based on a simple formula and is not tailored to your individual needs. Also, your cover may or may not include some kind of salary continuance benefits, which you should check. And by law, trauma insurance cannot be offered through a superannuation fund.
So, even if you are lucky enough to have some cover through your superannuation fund, there will probably be some gaps to fill.
For those who are eligible, the current maximum disability support pension is less than $750 per person per fortnight for a single person* (less for couples). How long could you support your lifestyle on that amount?
For the latest rates and eligibility criteria, visit the Australian Government Department of Human Services website.
In terms of workers compensation (WorkCover), it needs to be remembered that workers compensation is very limited in terms of the individuals and circumstances covered, and the amounts of benefit available. For more information visit your state specific WorkCover website.
* Source: Centrelink website, correct as at 1 September 2013
Carrying the extra risk when you are young is an option. Although, as the brochure Facts about Zurich claims (pdf 950Kb) shows, injury, illness and worse can and does strike at any time.
When you have family and commitments it's a different consideration. You can generally get cover at a lower rate when you are healthy with low or no medical requirements. This changes with age and of course your own medical history.
Once you have cover it can’t be taken away from you (provided you pay the premiums when due). But if you wait until you are older or less healthy, you may not be able to get the cover you need or you may need to pay more for the same cover.
As part of the application we ask you some questions about your health, occupation and lifestyle, and in most cases we are able to process your application without needing to ask for extra.
Occasionally, depending on your health or the type or amount of cover applied for, we may ask for extra information. This may involve a more detailed questionnaire or - in some cases - tests such as blood tests, or a medical examination (by your own doctor).
The costs for any such tests - in the event they are required, are fully met by Zurich, so you are not left out of pocket.
Tools & resources
We've put together a selection of tools and resources to help point you in the right direction. These include videos and testimonials from real people telling their stories about how life insurance helped them.
The human face of underinsurance
The value of life insurance advice - the story of Dr Greg Trevaskis
Insured Child Option
There's no better feeling than complete protection. With Zurich's Insured Child option, you can always be there for your children.
A closer look at the claims payments Zurich makes
on life insurance policies
A fact sheet outlining the
odds of being affected by
injury or illness in Australia