What Does Life Insurance Cover?

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Over the past decade you may have noticed an increase in life insurance advertisements. But what does life insurance cover you for? Is it necessary? And how can you go about finding the life insurance policy that is best for you?

Different types of life insurance

The term ‘life insurance’ – which typically covers an individual in the event of death – is these days an umbrella phrase for a number of policies. Life insurance – In this type of policy, you pay a premium – which is a payment of a certain amount either weekly, monthly or annually. In the event of your death, your spouse, next of kin or someone who you may nominate in a will gets a lump sum payment. This may assist to cover funeral expenses or any mortgage or other expenses. Income protection insurance – This is a policy where in the event of you becoming ill or sustaining an injury that prevents you from earning income for a significant period of time, the insurance will replace up to 75% of your income until you are in a position to return to work. This may be very important cover for your family if you are the sole income earner. Permanent disability insurance – As the name explains, this policy pays a lump sum payment in the event of you suffering a debilitating accident or being diagnosed with an illness that prevents you from being able to work. This may be worth considering if you have a family history of illnesses such as Multiple Sclerosis. There are also other policies such as Business Expenses insurance for self-employed persons or Critical Illness cover.

Is it necessary?

You may be querying whether you are the right candidate for a life insurance policy. This will largely depend on your circumstances. If you have a family, you are the sole income earner and you have a mortgage to repay, a life insurance policy is highly recommended. It is a measure of protection or security for your family in the event of any unforeseen incident. It provides that buffer for your dependents to know that mortgage repayments can be met if you are unable to work. The alternative of not having that security can place your family at risk. If you are self-employed or run your own business, you probably appreciate more than anyone that your business cannot run without you. Having the right type of life insurance cover can protect your business in the event of an unforeseen injury or illness. Ultimately, like any insurance policy, it is all about creating a feeling of security for you and for your family: that peace of mind in the knowledge that certain debts or payments can be met if you are unable to work.

How to choose the right policy?

There are a few matters you should keep an eye out for to determine which is the best life insurance policy for you and your family. First tip: always take the time to read the policy to yourself in your own space and within your own time. Digest the policy terms and conditions – they will define what you are paying your premiums for. You want to know that the circumstances that matter to you will be covered. You are legally entitled to ask for and consider the product disclosure statement beforetaking out the policy. Secondly, what should you look out for?

  • What illnesses are covered.
  • What is the amount in full that is paid out on my death.
  • When is that amount paid out (this may be crucial to ensuring funeral payments are met).
  • How much are the premiums, can they be paid in instalments and how often?
  • If you have a pre-existing condition, disclose it and ask how it affects the policy.
  • Can you change your premiums? Or your policy?
  • In the event of diagnosis of an illness which does not yet affect your ability to work, how does that affect your policy or premiums?

Another major point to consider is that the most expensive policy is not necessarily the best policy. If you are considering taking out a life insurance plan, perhaps speak with a lawyer to determine what is the most suitable insurance policy for your circumstances and what you want to get out of the policy. Ultimately a policy that is tailored to your circumstances and your needs is the one that is best for you.