What to look for in a life insurance policy

If you’ve decided to bite the bullet and buy a life insurance policy, you should take the time to work out which of the key features on offer are important to you. After all, this is one insurance policy you could wind up sticking with for the rest of your life.

To make it easier for you, we’ve rounded up some of the important things you should consider when choosing a life insurance policy.

Stepped vs level premiums

One of the main things to consider when choosing your life insurance policy is whether stepped or level premiums are for you.

If you opt for stepped premiums, the cost of your insurance will get higher as you get older. On the flip side, it's often cheaper than level cover when you first buy a policy. If you’re someone who is willing to shop around and switch insurance policies to find better value, this might be a good option.

Level premiums, on the other hand, won’t change with your age, but are more expensive to begin with. If you prefer to buy your policy and then not think about it again, this might be the best option for you. Keep in mind, while level premiums don’t rise as you get older, they may go up due to inflation or price adjustments from your insurance provider.

Benefit indexation

A life insurance policy generally lasts until you’re 65 years old. If you buy it relatively young – say at 30 years old – then it will last decades. Because of this, you may need to take inflation into account when choosing a policy.

Benefit or cover indexation means that the cover included on your policy will go up each year, either by a set percentage amount, or in line with the Consumer Price Index (CPI). This counteracts inflation, and means that your insurance will provide adequate coverage whether you make a claim in the first year of having a policy, or 30 years down the track.

Advance benefit payment

When you die, there could be a bunch of big costs that need to be taken care of straight away, such as paying for the funeral. If it's unexpected, or if you hadn't planned properly, then your family might have some trouble coming up with the lump sum payments necessary.

A life insurance policy with an advance benefit payment option means that your family can get a lump sum payment immediately after your death, so they won’t have to worry about trying to be frugal while planning a funeral.

Adjustment to sum-insured

There’s a good chance something will change in the next few decades that you haven’t planned on. Your income might increase or decrease, your cost of living might change – these things might mean you need to make an adjustment to the cover your life insurance gives you.

Sometimes the option to change your premium is written into your insurance policy, but at the very least, you should talk to your insurance company when you choose a policy to make sure you’ll have the option to do this if you need to.

Exclusions

It’s important to know what your policy covers, but it’s just as important to have an understanding of what it doesn’t cover. That way, you won’t go through the entire process of making a claim, just to have it rejected due to a blanket exclusion.

While you should always check your product disclosure statement (PDS) to find out what your policy covers and doesn’t, the most common exclusion you might come up against is self-inflicted injury. If your claim is related to self-inflicted harm, it likely won’t be successful.

Cooling off period

As with any insurance product, there should be a cooling off period on your life insurance policy. This starts when you buy your policy, and is usually between 14 and 30 days long. During this time, if you change your mind about having life insurance and want to cancel your policy, you’ll be able to get a refund on any premium you’ve already paid.

There are a few other cover options that you can buy on their own, but are often bundled as part of your life insurance. This includes total and permanent disability (TPD), trauma, funeral and children’s cover.

• Total and permanent disability cover: If you’re seriously injured and wind up unable to work or unable to live independently, TPD cover can help with things like medical costs, employing a carer or upgrading your home to allow disabled access.
  
• Trauma cover: This optional cover will give you a lump sum pay out if you ever wind up with a serious and sudden illness such as cancer, heart attack, or stroke, or if you need to undergo major medical treatment.
  
• Funeral cover: This is designed specifically to cover the cost of your funeral. If you buy it on its own, it may be a cheaper alternative to full life insurance. Buying it bundled with a life insurance policy is similar to having an advance benefit payment option.
  
• Children’s cover: It’s not something you want to have to think about, but you can add insurance for your children onto your own life insurance policy. This benefit will pay you a lump sum if your child dies, or is seriously ill or injured, to help you cover medical or funeral costs.

Now that you know the key features to look for in a life insurance policy, head over to our life insurance page to take a look at some of the best value policy offers around.