Is 2020 the year you should take out life insurance?

Niko Iliakis

Friday 24 January 2020

Life insurance isn’t the most glamorous of topics, but it’s pretty unwise to ignore it. After all, can you be sure your family won’t be overwhelmed by a wave of financial obligations if something were to happen to you?

Picking the right life insurance policy is a good way to make sure a difficult time isn’t made worse and your family’s finances aren’t thrown into turmoil if you or your partner suddenly pass away. Below, we look at some of the advantages and disadvantages of life insurance, plus the best times to sign up.

Pros

Avoid saddling your family with debt

When someone passes away, any debts they might have don’t just disappear — it falls on their family to settle them. So if you’ve got a mortgage, credit card debt, or any personal loans, life insurance will spare your family from having to pay all these off themselves.

Preserve your family’s lifestyle

If you pass away unexpectedly, will the lifestyle your family has still be sustainable? Along with the basics like groceries, internet and electricity, chances are they’ll want to be able to go on family outings, travel and do other fun things without having to worry about jeopardising their financial security.

Cover costs of terminal illness

Life insurance isn’t just paid out in the event of a death — you can also claim on your policy if you’re diagnosed with a terminal illness. Depending on the specifics of your policy, this payout will be available 12 or 24 months before a medical professional has said you are due to pass away.

Cons

Can be expensive, especially later in life

When calculating your premiums, insurers will take into account your health, age, and family medical history. As with other forms of insurance, the more likely you are to make a claim in the eyes of your insurer, the more you’ll pay in premiums. That means older Australians and those with preexisting conditions will find themselves at a bit of a disadvantage.

Do you already have life insurance through your super?

There’s a good chance you already have life insurance via your superannuation fund, so it pays to check. This is usually much cheaper than a standalone policy, but that’s largely because the level of cover is quite basic in comparison. Nonetheless, some people might find it more than sufficient, so make sure you weigh the pros and cons to determine if it’s right for you.

Advantages of life insurance through super

  • Cheaper than standalone insurance policies, as super funds purchase policies in bulk.
  • Easier to manage, as your premiums are automatically deducted from your super.
  • Often do not require health checks.

Disadvantages of life insurance through super

  • Cover might be limited, and likely won’t take into account your personal circumstances.
  • Detracts from super balance, leaving you with less funds for retirement.
  • Usually ends at age 65 or 70.

The right time to get life insurance

Generally speaking, it’s a good idea to consider taking out (or reviewing) your life insurance whenever there’s a big change in your personal circumstances. Even if you already have a policy as part of your super fund, it might be worth looking at other policies that provide more comprehensive cover. 

The obvious example is when you decide to start a family. Having children is a major life decision, and will likely force you to take stock of things in a way you hadn’t before. Whether you’re the sole breadwinner or not, life insurance can help make sure your family is equipped to navigate all the financial uncertainties that might arise in the event of your death.

The other big example is when you take out a mortgage. This is probably the biggest debt you’ll take on in your life and will still need to be paid off even if you pass away. Failing to do so will result in a situation where your bank is forced to sell off your home. Payouts from life insurance can help ensure your family isn’t struggling under the weight of mortgage repayments. 

For more tips, head over to our life insurance guides. And if you’re looking for a policy, check out our life insurance comparison page.

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