8 of the most-googled life insurance questions - answered

Rachel Smith interviews accountant Andrew Kennedy for Real Insurance.

If you have a family relying on your income, one thing sure to keep you up at night is how you or your family would cope if something unexpected were to happen. You might consider whether you should take out life insurance, but don’t know where to start. 

What type of life insurance do you need – and how much do you need? These are great questions, and they vary wildly depending on your income, debt and circumstances, according to risk adviser Andrew Kennedy at HLB Mann Judd Advisory and Accounting.

“It’s one of those things you contribute to over your lifetime hoping you’ll never need it,” he says.

Here, Andrew answers 8 of the most googled questions about life insurance

1. What is life insurance?

“Life insurance is cover that provides funds for your family or for your estate, taking out enough insurance to replace your earning capacity if you were to pass away. We look at making sure family expenses are covered (like the mortgage, the kids’ education and what the family might need for an ongoing income). And it’s especially important if you’re the major breadwinner and have a spouse who’s taken a career break to stay at home and take care of the kids while the other continues to provide for the family.” According to the Real Concerns Index, finances remain a top 3 concern for people in Australia. We still feel the pressures of keeping up with the cost of living.

2. What does life insurance cover?

“There are various types of life insurance. Life insurance is what protects your family if you were to die or suffer a terminal illness. TPD (total and permanent disability) is what protects you if you’re never going back to work again due to an illness or injury. Income protection covers temporary and permanent disablement. And trauma insurance gives you the option to choose whether or not to take a break from work – so say you had a heart attack and wanted 12 months off to recuperate, you would get a trauma benefit.”

3. Can I get life insurance later in life?

“Yes. You can take out life insurance after 65 if you have a need for it (depending on the insurer). For most clients, the trigger will be buying a house, having kids or getting married because then there’s something you want to take care of if you’re not around anymore.” 

Depending on your age there are different life insurance products/policies and options available.

4. Should my partner and I both get life insurance?

Individual circumstances will vary, however your lifestyle could expand to consume all the income available in the event your partner passes away or suffers a terminal illness. Andrew notes." If you’re used to living, say a $500,000 lifestyle (on a dual income) and suddenly you’re on a $250,000 lifestyle, that’ll have a big impact.” Other factors may come into consideration in this decision, e.g. existing savings, superannuation balances, etc. To help you with how much cover you may need, you might want to use a life insurance calculator to get started. 

5. What will the insurer need to know about me?

“They’ll need to know your occupation, your age, where you live, whether you smoke and they may want a bit more information about your medical history, including pre-existing conditions. Some insurers underwrite at the end so they don’t require much medical history when you apply (that means they will look into your medical history at claim time and decide whether or not to pay the claim), whereas other insurers get all that information up front.”

6. Do I need life insurance if I don’t have kids or if they’re grown up?

Not everyone needs life insurance, and if you don’t have kids or a spouse, you may want to consider whether it is required. Everyone’s needs and financial situation is different. If you have grown-up kids but you still have a big mortgage, you might still consider it.

7. What are some common mistakes to avoid with life insurance?

“First up is not answering the questions truthfully when you apply for life insurance. The insurance companies will investigate at claim time”. If information you’ve provided is false or a misrepresentation, this may affect whether your claim is paid or if you receive a reduced benefit amount. “The other big mistake I see is people thinking that the default life insurance they get through their superannuation is going to be enough, and they can just set and forget it.” 

You should consider regularly reviewing any default life insurance coverage to ensure its sufficient for your needs. Another common mistake Andrew notes is “taking out life insurance and forgetting to change your beneficiary if, say, you get divorced. If your ex is the beneficiary when you die, your insurance is going to your ex and there’s nothing you can do about that!”

8. What do you need to check on a life insurance policy?

“You’ll want to check what is and isn’t covered, including medical conditions and pre-existing conditions. Also check any extra benefits or features and waiting periods before you can make a claim. Being aware of premiums now and how they might go up in the future is important too.”

Having insurance policies in place is an important decision to consider. Talk to us about how we can help.