Facts You Need to Know About Life Insurance
In today's uncertain economic climate, buying an insurance is a smart and astute financial move for people who want their family or other dependents to be financially secure even after they die. Sadly, however, many policy holders are under insured, putting their loved ones at risk. On the other hand, many are also over-insured, paying for coverage they don't really need.
Finding the right balance in buying the right insurance for both you and your family has never been more confusing and difficult. Though there is a lot to say about consulting with insurance agents, there is still no substitute to teaching oneself the basics of life insurance policies.
Here are some important facts that you need to know about life insurance Australia:
How long should the plan holder insure?
The length of insurance policy depends on your reason for taking out a policy. At the very least, you're taking out in order to replace your income for some years-until your kids, spouse, or dependent relatives have the means to fend for themselves; or until your spouse can tap into retirement savings (usually at age 65). It could even be timed until some key date in the future like for mortgage protection purposes where you could insure yourself for the same number of years that are remaining on your mortgage. Working back from that date to now can help you determine the number of years for which you need life insurance cover.
Most insurance companies regard 2 years as the minimum, but 20 - 25 years as the most common length of time to be covered. Most insurance companies will not offer insurance past the age of 70. However, a few still will insure beyond 70, but the premium would be very expensive.
For how much should your coverage be?
Coverage is largely based on your income. Usually, a common rule of thumb is to take out a policy that is worth 7 to 10 times your income. Make sure your family's needs are adequately covered. You must take into account that your will not only replace your income. One must also consider the family's future expenses. It could be that, once you die, your family may incur medical or funeral expenses, or you may want to ensure that the mortgage can be paid in full.
So adapt your insurance coverage to your current needs as well as to the possible needs of your family in the future. You don't want to pay for more coverage than you need. Buy a insurance policy that provides you all the coverage you need when you need it.
When is the right time to buy insurance?
The younger and healthier you are, the cheaper the policy. Older people and those not in the best of health pay steeply higher rates for insurance - so buy as early as you can, but don't buy until you have dependents. The amount of premium you're going to pay will be based on your medical exam, as well as your age, medical records, family medical history, and other factors.
However, even if you have a pre-existing condition or are older, don't assume your premiums will now be much more expensive. Medical advances have made many conditions manageable, even cancer. For those with preexisting conditions, you can shop around to see which company offers the best insurance quotes for you.
What life insurance policy do you need?
There are various types of insurance policies available to suit different needs and situations. However, the most common types of life insurance are term and permanent life insurance. Both of these policies are considered guaranteed life insurance policies. This is because each of these brands of insurance has a guarantee in them.
Term life insurance basically provides coverage for a specified amount of time. It can only provide coverage until a certain age, such as 75 or 80 or until 95. It is more affordable and preferred by young people. It can also be changed into a permanent policy. This could be a good idea to protect against failing health as you grow older.
Term life insurance has guaranteed renewability. This means that that the policy is renewable, but premiums keep on increasing with each renewal. Most companies offer term life policies that allow for coverage up until the age of 95. If you pass away while the policy is in force, then your beneficiary is guaranteed a death benefit in the amount of coverage you selected on the policy. These types of policies are very good for covering expenses such as outstanding debt or preparing for burial expenses. However, it might be wiser to switch to permanent life insurance later on, especially if you are only using term life insurance to cover a short-term need like university education.
Permanent insurance, can provide protection for your entire lifetime. It is guaranteed to accumulate cash value on the policy while paying fixed premiums. The coverage of a permanent life insurance will be guaranteed regardless of any change in health as long as the premiums are paid on time.
In order to qualify for whole life insurance, you are most likely required to take a medical exam.
A more flexible type of permanent life insurance is universal life. This is a blend of permanent and term. This means that it is similar to whole life insurance, but you can choose how much you pay for a certain period of time. If you want guaranteed coverage while accumulating more interest and cash value on your policy, then this type of policy would be best.
Guaranteed or a Reviewable Policies?
In a "Guaranteed" policy, the insurer (the insurance company) guarantees that it will never raise your monthly premium.
In "Reviewable" policy, the insurer reviews its premium at regular intervals - usually at intervals between 1 and 5 years. At the Review date, your insurer has the right to increase your premium and as you get older, increases will become larger.
In the medium to longer term, a Reviewable policy will cost you more than a Guaranteed policy.
On the other hand, Reviewable policies do have the benefit of a lower premium at the outset. For this reason, this might appeal to many people, especially if budgets are tight. However, through the review system, Reviewable policies' premiums can soon catch up and overtake.
