Do you consider life insurance as an investment? You can buy life insurance from your super fund, financial adviser, insurance companies, or insurance brokers.
First, you should work out what type of life insurance to get and what it covers?
Types of life insurance cover
The life insurance for you depends on your situation. Always check what’s included and excluded in each life insurance policy.
Here are the different types of life insurance cover:
- Term life insurance cover (life cover) — a.k.a ‘death cover’, pays a set amount of money, which goes to the people you nominate as beneficiaries on your policy when you pass away.
- Total and permanent disability (TPD) cover — often sold with life cover, TPD pays a lump sum that can be used for living costs and rehabilitation if you are permanently disabled.
- Trauma cover — a.k.a ‘recovery insurance’ or ‘critical illness cover’, provides cover for when you have certain illness (cancer or a stroke) that impacts your life.
- Income protection insurance — a.k.a ‘salary continuance’, it replaces some of your income to help you with your expenses if you are unable to work because of injury or sickness.
- Accidental death cover — it’s quite similar to life cover. Accidental death cover pays your nominated beneficiary if you die from an accident. Beware that most of the accidental death policies exclude infectious diseases, heart attack, and suicide, among other things.
Note: Term life insurance can be bundled with other types, such as TPD and Trauma.
Disadvantages of term life insurance cover
Insurance product‘s tailored features (term protection) can present some drawbacks in certain situations. Consider the disadvantages of term life insurance cover.
Is Life Insurance A Smart Investment? Click To TweetNo accrued cash value
It doesn’t accumulate an investment portion, so it doesn’t accrue any cash value — hence, it’s cheaper.
If you live beyond the maximum expiry age and outlive the term of your term insurance, your beneficiaries don’t receive any benefit.
Renewals and costs
Validity of a policy is only for the term you’ve chosen. Upon expiration, you need to take out a new policy to continue to be covered. This is more expensive as you are older and experience changes in your health and lifestyle.
Your premiums
If you engage in risky activities, do dangerous tasks at work, or have vices (smoking) expect to pay more — insurer will base your premiums on the level of risk you are to them.
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Note: Life insurance cover is usually available for Australian citizens and permanent residents of Australia — generally age 75 (some insurers allow age 80).
