simple guide to life insurance

7/31/2019 Simple Guide To Life Insurance

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About this guide

Whats in this guide

About the author

Giving feedback

Life Insurance

Trauma Insurance

Total & Permanent Disability (TPD) Insurance

Income Protec on

Do I need life insurance?

What is a risk

Where to go to invest

The purchasing process

The value of shopping around

Calcula ng how much insurance you need

Not all brokers compare all products

Beware of Direct Life Insurance

Most life insurance policies pay claims

Life insurance products dont have to be expensive

Governments dont provide nancial support

Other ps

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Introduc on

What is life insurance

Why buy life insurance products

How to invest in lifeinsurance

Tips, tricks and bus ngmyths

Taking the next step

Glossary


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About this guideIn 2010 lifebroker published ndings of a na onal online study of 1,000 respondents aged 25 plus,concerning their a tudes, knowledge and behaviourtowards Life and Income Protec on Insurance.

The study was commissioned by lifebroker toimprove understanding of the underinsurance issuein Australia, including the extent of underinsuranceand its causes.

The study showed that Australians are signi cantly

underinsured when it comes to Life and IncomeProtec on Insurance, with uptake ra os for Lifeand Income Protec on Insurance falling well belowthose for car, home and health insurances.

The study pointed to several poten al causes of underinsurance, including:

A profound lack of awareness and understandingassociated with Life and Income Protec on Insurance

A lack of recogni on of the poten ally calamitousnancial consequences of long term injury or illness

or premature death, and

Misinforma on associated with the cost of Lifeand Income Protec on Insurance, with mostAustralians signi cantly overes ma ng the costs.

To address these issues lifebroker developed this guide.

Whats in this guideThis guide contains everything you need to knowabout the four main life insurance products Life,Income Protec on, Trauma, and Total & PermanentDisability Insurance (TPD), and will answer thefollowing ques ons.

What is life insurance?

What life insurance products are available?

Why invest in life insurance?

How do I invest in life insurance?

Are there any ps, tricks and myths I should beaware of?

About the authorLifeboker is one of Australias largest online brokersof life insurance products and provides free, onlinepremium comparisons between Australias majorlife insurers.

Lifeboker is not an insurance company and is notwholy-owned by an insurance company. It deals witha variety of insurance companies and has the interestof consumers at heart.

Lifebroker was founded in 2002 and is operated

by Na onal Financial Solu ons Pty Ltd, holder of Australian Financial Services Licence 284182 issuedby the Australian Securi es and InvestmentCommission.

Please speak with your mortgage broker to ndout more about the services Lifebroker o er.

Giving eedbackIf you have comments about this guide or ques onsabout life insurance products, please contact your

mortgage broker, who can direct you to an insurancespecialist.

Introduction


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What is li e insurance

The term life insurance has two meanings. Firstly,

its the name given to a class of insurance productsof which there are four - Life, Income, Trauma,and Total & Permanent Disability Insurance (TPD).Life insurance products are di erent to generalinsurance products which cover assets like yourcar and home, and health insurance productswhich cover expensive medical bills not covered byMedicare.

Life Insurance is also the name given to a speci c type

of life insurance product that provides a lump sumpayment in the event of death or terminal illness.

To avoid confusion, this guide uses Life Insurancewhen referring to the speci c product, and lifeinsurance when referring to the class of insurance.

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Li e InsuranceAlternative names

Some mes known as Death Cover, Term Life Insuranceor Life Cover.

What is it?

It pays an agreed lump sum of money in the event of your death or terminal illness (ie an illness from whichyou are expected to die within 12 months [according to

a medical prac oner], thereby allowing for an advancepayment). Most policies can be renewed up to age 99.The only exclusion on the policies is death due tosuicide in the rst 13 months.

In the event of your death, your family can use thelump sum to:

Pay o debts, and

Provide an income to maintain their lifestyle andachieve their nancial goals.

Do products di er across di erent insurers?Life Insurance is a simple insurance policy and issimilar across most insurers. There is li le, if anydi erence between most life insurance policies.

Options

Most Life Insurance policies provide the op on of including Total & Permanent Disability (TPD) andTrauma Insurance.

How much cover is enough?Its important you choose the right level of coverfor you and your familys needs. Think about your

nancial commitments and how long they last,taking into account the following factors:

Any debts you have

Your childrens future educa on costs

How much an ongoing income stream would cost, and

Providing for any major future purchases.

See the sec on, Calcula ng how much insurance youneed, for more informa on.

How much does it cost?

Premiums are calculated on your:

Age (premiums may increase or decrease as youget older)

Gender (women generally live longer than men sopay lower premiums), and

Whether or not you smoke.

Standard premiums for healthy, non-smoking male/female taking out $500,000 life cover are as follows:

Li e Insurance in aSnap Shot

It pays an agreed lump sumin the event of your death ordiagnosis of a terminal illness

Used to cover debts and protectloved ones in the event of

premature death Many policies also have a

funeral advancement bene t

Also known as Death Cover,Term Life Insurance, Life Cover

Life Insurance is a simplepolicy generally the same

across di erent insurers

Age Monthly Life Insurancepremium for a male/female

Male Female

25 $31.05 $23.28

35 $30.71 $24.0645 $53.58 $40.78

55 $172.79 $108.62


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Tax treatment

Life Insurance premiums are generally not taxdeduc ble, however this also means that thebene ts from a Life Insurance policy are generallyalso tax free (non-superannua on).

Tips

Do not confuse Life Insurance with acidental death insurance. Life Insurance will providea payment regardless of the method of death(except suicide in the rst 13 months). Accidentaldeath, while o ering signi cantly lower premiumso er very limited protec on.

Case studies Situa on: 45 year-old couple with two teenage

kids and a $150,000 mortgage with the fatherearning $90,000 a year and the mother providingfull- me home care. One parent dies unexpectedlyfrom a heart a ack.

Life Insurance of up to $500,000 allows theremaining parent to pay o the mortgage,leaving $350,000 to be invested and providean income stream to the remaining family members.


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Trauma InsuranceAlternative names

Also known as Cri cal Illness Insurance.

What is it?

Trauma Insurance pays a lump sum in the eventthat you su er a medical trauma that impactsyour life and lifestyle. Over 50 di erent traumaevents may be covered including diabetes, Alzheimersdisease, loss of limbs, stroke, heart a ack, cancer,and brain tumours.

In the event of a trauma, you and your family canuse the lump sum to:

Pay for lifestyle changes and rehabilita on.Some medical condi ons can a ect your mobilityor cause disablement and you may need to purchaseitems or modify your home to help you copewith these changes,

Allow you, and your partner if necessary, to takesome me o work to assist in recovery, and

Pay o debts.

Trauma Insurance is not a replacement for IncomeProtec on Insurance or private health insurance.Its designed to help pay o debts and the costsof rehabilita on. You could use the money to payfor specialists or medical bills, make modi ca onsto your home, pay o your mortgage or coverrental payments.

Do products di er across di erent insurers?

Di erent products from di erent insurers coverdi erent condi ons. It is important to considerthe de ni on of each condi on when selec ngwhich product to purchase. Many companieswill o er both basic and comprehensive polices(that cover a broader range of medical events).

Make sure you read the insurers productdisclosure statement (PDS) carefully to see whatcondi ons are included and excluded.

How much cover is enough?

Think about your nancial commitments and howlong they last, and take into account:

The cost of immediate care

The ongoing cost of any therapy, special transportcosts, adjustments to housing and lifestylechanges, and

Any debts you have.

See the sec on, Calcula ng how much insurance youneed, for more informa on.

Trauma Insurance ina Snap Shot

It pays an agreed lump sumin the event you su era set medical condi on

Used to help with medicalexpenses and loss of income

in the event of trauma Over 70 di erent trauma events

may be covered, which includecancer, heart a ack and stroke

Also known as Cri cal IllnessInsurance

Number and type of condi ons

covered can vary signi cantlyacross di erent insurers


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Trauma Insurance is rela vely more expensivecompared to other forms of life insurance. Likeother life insurance products, Trauma Insurancepremiums can vary according to:

Age (premiums may increase or cover decreaseas you get older)

Gender (women generally claim higher amounts sopay higher premiums)


Standard Trauma Insurance premiums for nonsmoking male/female taking out $100,000 traumacover are as follows:

Taxtreatment

The bene t payment is free of tax and there areno restric ons on how you can use the payment.


kids and a $150,000 mortgage with the fatherearning $90,000 a year and the mother providingfull- me home care. The father su ers a strokeand is unable to work inde nitely, and is physicallyand mentally restricted.

Trauma Insurance pays him $500,000, allowingthe family to pay o the mortgage, re t thehome to allow for greater mobility, pay for acarer and provide an ini al income stream.

Age Monthly Trauma Insurancepremium for a male/female

Male Female

25 $19.05 $19.41

35 $22.84 $24.08

45 $51.88 $47.91

55 $150.52 $101.44


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Total & PermanentDisability (TPD)InsuranceAlternative names

O en referred to as Total & Permanent DisablementInsurance.

What is it?

TPD Insurance provides a lump sum paymentif youre totally and permanently disabled.Depending on your policy, you are covered if you cant work again in any occupa on (thatyou are reasonably suited to by educa on,training or experience), or cant work in your ownoccupa on (your usual occupa on or chosen eldof employment).

TPD Insurance can be used to help cover rehabilita oncosts, repayment of debts and the cost of living for you

and your dependants. Payments are not usually madeun l the disability has been evident for six months,and the insurer deems that you are unlikely to workagain based on the de ni on in your par cularpolicy. It can speci cally:

Pay for lifestyle changes, and

Pay o debts.


Generally TPD policies are very similar across di erent

insurance companies.

Make sure you read the insurers product disclosuredocument (PDS) carefully to see what condi ons areincluded and excluded.


TPD Insurance cover is rela vely more expensivecompared to other forms of life insurance. Like otherlife insurance products, TPD Insurance premiums canvary according to:

Age (premiums may increase or cover decrease asyou get older)

Gender

Whether or not you smoke, and

Occupa on (for example, a manual labourer payshigher premiums to an o ce worker).

Standard TPD Insurance premiums for non-smokingmale/female o ce worker taking out $500,000 TPDcover are as follows:

Age Monthly TPD Insurancepremium for a male/female

Male Female

25 $24.86 $24.33

35 $26.30 $26.31

45 $55.92 $55.92

55 $228.31 $228.64

TPD Insurance ina Snap Shot

It pays an agreed lump sumin the event you are totally andpermanently disabled

Used to cover debts andprovide income to cover lifestylein the event of disablement

Also known as Total & PermanentDisablement Insurance

TPD policies are generallysimilar across most insurers

De ni on can be for your ownoccupa on or any occupa on


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Income ProtectionAlternative names

Income Protec on is some mes known as IncomeInsurance or Disability Income Insurance.

What is it?

Income Protec on will cover 75 per cent of yoursalary for a period if youre temporarily unable towork because of sickness or injury (anything notallowing you to con nue your work). You will

con nue to receive 75 per cent of your income un lyou return to work or to the end of the bene t period.

Options

Bene t period this is selected when you applyand can be 2 years, 5 years or to a speci c age,e.g. age 65. The longer the bene t the higher thepremium, because in the event of a claim youwould be paid for a longer period.

Wai ng Period this determines how long youare unable to work before the policy begins paying

your income. For example, with a 30 day wai ngperiod you would begin receiving payments a er31 days. The longer the wai ng period chosen,the lower the premiums and can be 14, 30, 60,90, 180 days or two years.

Indemnity Value with an indemnity policy, youare insured for what you say you earn, but if youmake a claim you have to verify your income. If your income has reduced since you applied forcover, your claim will be paid on the reduced amount.

Agreed Value with an agreed-value policy,you prove your income at the me of applyingand insure to receive a set amount. The advantageis that you know what you will receive, regardlessof changes in your income. The disadvantage isthat these policies premiums are approximately20 per cent higher than for indemnity contracts.

In the event of illness or injury, you and your familycan use the income to:

Con nue your lifestyle and work towards yourfuture life goals, and

Con nue to meet any debt obliga ons you mighthave, e.g. mortgage repayments or living expense.


Income Protec on can di er markedly acrossdi erent insurance companies. The main di erencesare related to:

De ni ons of disability, par al disability andrecurring disability

De ni ons of income, and

Range of addi onal bene ts (nursing care, hospital

bene ts, accident bene ts).Make sure you read the insurers product disclosuredocument (PDS) carefully to see what condi ons areincluded and excluded.

Income Protec on in aSnap Shot

It pays 75% of your salary if due to sickness or injury you areunable to work

Used to protect your mostvaluable asset - your income

There is no set list of condi onsin order to claim, broad coverage

Also known as Income Insuranceor Disability Income Insurance

Policies can vary greatly fromone insurer to another

Premiums are tax deduc ble

Can be tailored to your budget

by altering the bene t period,wai ng period and by takingan agreed or indemnity valuepolicy

Increasing Claims op on is anop on on all policies andshould be taken as standard


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How much cover is enough?

A majority of people will establish Income Protec onInsurance for their full 75 per cent of normal income.The wai ng period and bene t period are tailored to

nd the ideal premium.

See the sec on, Calcula ng how much insuranceyou need, for more informa on.


Income Protec on Insurance can be more expensivethan Life Insurance, but the premiums are taxdeduc ble. Bene t payments, however, are

considered income and therefore subject to tax (atmarginal tax rates).

Income Protec on Insurance premiums vary accordingto the following.

Age (premiums may increase or cover decrease asyou get older).

Gender (rates for females are higher than males).


Occupa on (for example, a manual labourer pays

higher premiums to an o ce worker). Wai ng period the me you choose to wait before

receiving payment.

Bene t period how long you will receive paymentsin the event of a claim.

Agreed or Indemnity style policy.

Any extras chosen like Increasing Claims etc.

Standard Income Protec on Insurance premiumsfor non-smoking male/female o ce workers areas follows*:

Premiums can be reduced in the following ways.

Increasing the wai ng period, which is the meyou need to wait before your insurance startspaying the monthly bene t. You can set wai ngperiods from 14, 30, 60 days or 90 days and evenup to two years, which can more than halve yourpremium. However, make sure you have savings tosurvive the wai ng period.

Reducing the bene t period, which is the lengthof me you can be on claim. This can reduce yourpremium by up to 20 per cent.

If you are employed with a steady wage, not

self-employed, consider choosing an indemnitystyle policy. This sets the monthly paymentamount on your most recent income statementand can reduce your premium by 20 per cent.

Tax treatmentIncome insurance premiums are generally 100 per centtax-deduc ble, providing poten al savings of up to46.5 per cent depending on your marginal tax rate.

In the event of a claim the monthly bene t is treatedas taxable income (however tax is not removed bythe insurance company).

Tips Income Protec on Insurance and Salary Con nuance

are di erent polices. Salary Con nuance is usuallyo ered through a group scheme and o en heldthrough superannua on. Income Protec on Insuranceis an individually owned policy.

Self-employed people with variable income shouldconsider an agreed value policy.

Increasing claims this is an op on on all policiesthat should be taken as standard. This means that

in the event of a long term claim the amount youare paid will increase each year with in a on.


kids and a $150,000 mortgage with thefather earning $90,000 a year and the motherproviding full- me home care. The fatherseriously injures himself outside of work and isforced to take eight months o work.

Income Protec on Insurance pays him $67,500over the full eight months, allowing the familyto con nue paying the mortgage, and providingan income stream to the family un l the fatheris able to return to work.

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Age Monthly Income Protec onpremium for a male/female

Male Female

25 $40.88 $57.94

35 $54.20 $77.92

45 $95.06 $143.48

55 $180.89 $267.96

Based on:

$60,000 annual income ($3750 monthly beneft) Indemnity value 30 day wai ng period Beneft to age 65


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All of us have immediate nancial needs and

our ability to meet these needs depends on ourcapacity to earn an income.

An income also allows us to save for the future,like saving for a home or car, to raise a family,or re re comfortably.

An income also lets us save to invest in things likeshares, business ventures, or assets like property,which can grow our savings faster, funding moreambi ous future plans.

Injuries, illnesses and death can stop youearning an income either temporarily orpermanently, pu ng all these nancial plansat risk.

Life insurance products provide a backupwhen you cant earn an income due tothese events. The amount of money thatlife insurance can provide can be signi cant in the hundreds of thousands or even millionsof dollars depending on your level of cover.

Why buy li e insurance products

Figure 1 Life insurance is one of the three nancial pillars on which your future nancial plans depend.

Lifestyle Expenses(Basic Needs)

Assets (Cars,Homes)

Pleasure Ac vi es

Raising Children

Helping Others (Philanthropy)

Your Financial Plans

Saving BuildingWealthLi e

Insurance

Have you ever stopped to think:

How would I copefnancially i I injuredmysel tomorrow, or

had to fght a seriousillness?


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Figure 2 - Use the decisionchart to help understand

your life insurance needs

Do I need li e insurance?The following ow diagram can help youunderstand your needs, because eachpersons circumstances di er.

Does anyone depend on you nancially?

Do you work and earn an income, and do you depend on your income topay or save for:

Day-to-day living expenses? Debt repayments (mortgage,

personal loans, other debts?) Future life plans (home or car

ownership, educa on, holidays,re rement plans)

Investments? Other life plans?

Have you saved up enough money, or inherited enough money or own enoughassets that you can meet all your nancial needs without ever working again?

Is there any chance illness or an injury one day could stop you working, and if it didwould it be di cult to cope nancially? (see below for info about the risks.)

Is there any chance you could die prematurely and if you did would your family copenancially? (see below for informa on about the risks.)

Is there any chance you could one day su er a medical trauma and survive, and if you did would it be di cult to cope nancially ? (see below for informa on about

the risks.)

Is there any possibility you could one day be totally and permanently disabled due to anaccident or injury, and if you did would it be difficult to pay for rehabilitation and necessary

life adjustments? (see below for information about the risks.)

You may need Income Insurance

You may need Life Insurance

You may need Trauma Insurance

You may need Total & PermanentDisability Insurance

You may not need IncomeInsurance

You may not need Life Insurance

You may not need Trauma Insurance

You may not need Total &Permanent Disability Insurance

You may not need any lifeinsurance products

You may not need any lifeinsurance products

You Provide for a partnerand/or children and/or family.

You only providefor yourself

YesYes

Yes No

Yes No

No Yes

Yes No

Yes No

Yes No

Yes No


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What is a riskA risk is both the likelihood an event willoccur and its nancial impact if it does. Higherrisk events are events that are more probableand have a higher nancial cost. For example,many people accept that it is quite commonto experience some type of minor car accidentduring their life me, and so consider this tobe at the higher end of the risk scale. Similarly,many families would not cope nancially if themain income earner died prematurely, even

if less probable, and so also consider thisa to be at the higher end of the risk scale.The diagram to the right illustrates this idea.

Figure 3 - Your risk of any event is determined byits probability and its nancial impact

Impact$

Probability

MediumRisk

LowRisk

HighRisk

Minor CarAccident

PrematureDeath


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1Australias Health 2008, Australian Ins tute of Health and WelfareReport, Chapter 2.3, Long-term condi ons, www.aihw.gov.au2Ibid3Ibid, page 124Australias Health 2008, Australian Ins tute of Health andWelfare Report, Chapter 2, Mor tality, www.aihw.gov.au

Risk Financial CostAn illness or an injurycould stop you workingfor a period longer thanyou have sick leaveaccrued

The value of your incomefor the period you are o work.

Die prematurely The value of your incomeand the wealth it couldhave created, for the restof your familys life.

A medical trauma,which can take you o work for long periods,

or for the rest of yourlife

The value of your incomefor any period you are o work, possibly for the rest

of your life. Also, there maybe the cost of any specialmedical expenses notcovered by Medicare oryour health insurance.

Become totally andpermanently disabled

If you are unable to work,the value of your income forthe rest of your life. Also, thecost of adjusting your life tothe disability, as well as anyspecial medical expensesnot covered by Medicareor your health insurance.

What are the probabilities o illness, injury and death? Risk of illness: In 200405, an es mated 77 per

cent of Australians had a long-term medicalcondi on; that is, a disease or other healthproblem that had lasted, or was expected to last,6 months or more. 1

Risk of injury: Injury a ects Australians of all ages, is the greatest cause of death in the rsthalf of life, and leaves many with serious

disability or long-term condi ons. In 2003,injury accounted for 7 per cent of the burden of disease (Begg et al. 2007). Injury accountedfor over 1 in 20 of all hospitalisa ons in Australiain the nancial year 2005-06, with 400,000 admi edpa ent episodes that year. 2

Risk of disability: According to the AustralianBureau of Sta s cs the number of peoplewith disability doubled between 1981 and2003, to reach an es mated 3.9 millionAustralians, or 20 per cent of the popula on

in 2003. Because of severe disability, over 1 millionAustralians need assistance with the core lifeac vi es of mobility, self-care or communica on. 3

Risk of death: About 25 per cent of males and 15per cent of females in 2005 were of persons agedless than 65. 4

What are the fnancialconsequences o illness,injury and death?The nancial impact of di erent events depends onyour nancial circumstances; however, the followinginforma on can help you assess the poten al cost.


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Where to go to investMost life insurers dont sell directly to the public,the reason being that advising consumers andadvising on and selling life insurance products,requires special skills and resources. Most insurerswould prefer to leave this to other experts.

You can generally only buy life insurance productsthrough a life insurance broker or a nancial adviser.Brokers and advisers provide both face-to-face andonline/phone services.

Brokers and nancial advisers must be licensedby the Australian Securi es and InvestmentsCommission (ASIC) to be able to o cially adviseon and sell life insurance products. If you wouldlike to know if your adviser is appropriatelylicensed or authorised, you can check theAustralian Securi es and Investments Commissions website www. do.asic.gov.au or contactASIC on 1300 300 630 or by email [email protected] u .

The purchasing process1. Decide what insurance you want to obtain

(see the decision table on page 10).

2. Decide how much cover you want for eachlife insurance product (see the sec on, Calcula nghow much insurance you need, below).

3. Shop around using a broker, comparing premiumsfor di erent insurers based on your needs.Premiums can vary widely (see the sec on The valueof shopping around, below). Be prepared to tweakfeatures and alter coverage to suit your needsand budget.

4. Once you have chosen an insurer, apply for theinsurance product through the broker.

5. As part of the applica on process the brokerwill take you through the underwri ng process,where you provide detailed medical, health andoccupa on informa on. This allows the insurerto assess more precisely your health, whichdetermines your nal annual premium.

6. Once you have submi ed your applica onthe insurer will assess your submission and providea wri en insurance contract.

7. Sign the insurance contract and pay the premium

to commence your policy.

8. On an annual basis, review your insurance needsand ask your broker each year to compare premiums,no ng that the older you get the higher yourpremiums are likely to be.

The value o shopping aroundFailing to compare premiums across di erent productscould lead you to paying hundreds of dollars extra ayear in premiums.

Premiums for personal insurance policies can varyby up to 50 per cent between insurers for a policyproviding the same level of cover.

The reason premiums can vary between insurersis because di erent insurers cover di erent illnessesand injuries and other events, exclude di erentcondi ons, and assign various risks to diverse groupsof people.

The easiest way to shop around is to ask the broker

or adviser to compare products for you. The moreproducts they compare, the more likely you are tond the right product at the lowest premium.

Calculating how much insuranceyou needOnce you have decided which insurance productsyou need, you then need to decide on your levelof cover the amount the insurance will pay youin the event you make a claim.

Sta s cs show that many people who have insuranceare underinsured, meaning the amount they will bepaid will not be enough for their nancial situa on.

Below are some basic guidelines to help you setthe right level of cover for each of the four lifeinsurance products.

There are generally two main considera ons whendetermining the level of cover.

Paying o debts your bene t amount can be

used to cover debts so theyre not passed onto your family. These might include mortgages,personal loans, margin loans and credit card debts.

How to invest in li e insuranceThis sec on provides ps for inves ng in life insurance products.


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Earning an income If youre earning an income

for your family, insurance can also provide anincome stream if you can no longer work.When calcula ng the income you wish toprovide, remember that it should be able tocover both your monthly living expenses plusany savings you want for future nancial plans(educa on, leisure, investments, re rement) andfuture purchases (homes, cars).

When calcula ng how much you need, youshould also take into considera on your currentassets, as these can improve your nancial

situa on. For example, what savings, investments,income from investments, or saleable assetscould you immediately rely on? These may reducethe amount of cover you need.

People should generally have:*

Life Insurance for around 10 mes their annual salary.

Income Protec on Insurance to cover 75 per centof their earnings.

Trauma Insurance to cover of between $100,000and $250,000 is common.

Total and Permanent Disability Insurance is o enset at the same amount as Life Insurance, or lowerif Life Insurance cover is high.

*These indicators are not tailored to your unique circumstances and sothey might not be appropriate to you. You should fully read the warningat the end of this brochure before making any decisions about lifeinsurance.


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Not all brokers compare all productsBeware some brokers and advisers may onlycompare a few insurance products, not all productsavailable.

Make sure you use a broker or comparison websitethat compares all the major insurance products.

Ask the broker if they have a rela onship with aninsurance company and ensure they clearly jus fytheir insurance recommenda ons.

If you are unsure, get another opinion - it could saveyou thousands of dollars.

Beware o many direct li einsuranceA rela vely new product on the Australian market isDirect Life Insurance. This is Life Insurance solddirectly by the insurers, i.e. not through a broker or

nancial adviser. The insurers will use an applica onprocess that asks very few health and medical

ques ons and requires no medical tests. In manycases it can be as simple as cking a box and signingyour name.

Direct Life Insurance policies are popular with somepeople because they may feel uncomfortableproviding health and medical informa on, or theymistakenly think that detailed ques onnaires are totheir disadvantage or an unnecessary hassle. Thesepolicies are usually promoted heavily on TV, radioand through direct mail.

While the applica on process is simple, the downsideof Direct Life Insurance is its cost. Because the insurerknows less about your health and medical history, youare classi ed as higher-risk and the higher yourperceived risk the higher your premium will be.

Most li e insurance policies payclaimsContrary to popular belief, life insurers do not tryto use loopholes to avoid paying claims. Each year

Australian life insurance companies pay millions of dollars to thousands of Australians, for illnesses,injuries and premature deaths.

Li e insurance products donthave to be expensiveLife insurance product premiums can be comparableto premiums for houses, cars, and health insurance,while the payouts from life insurance policies areusually much, much higher than those of generalinsurance. Considering this, life insurance productsare excellent value for money.

Governments dont provide

fnancial supportDespite what people seem to believe, governmentsonly provide you with nancial support if you are injuredat your place of work. This type of support is providedthrough Work Cover. For all other illnesses, injuriesoutside work and in the event of your death, allAustralian governments expect individuals to haveinsurance to protect themselves.

Other tips Dont just insure the highest income earner in your

household.

Read the product disclosure statement (PDS)which describes the product, its bene ts and anylimita ons as well as its fees and charges.

You have a duty of disclosure. To meet this youmust answer all ques ons on the applica onform truthfully, paying par cular a en on toany medical condi ons and whether you smoke,otherwise your insurer may decide not to pay a claim.

Complaints - if your complaint concerns a productor service you have purchased, you should rstraise your complaint with the business or personwho provided you with the goods or servicesyou are complaining about. If you cannotresolve the problem with them, or if yourcomplaint is about misconduct or illegalac vity by a company or person, then ASICmay be one of a number of government andnon-government organisa ons able to help you(www.asic.gov.au).

Tips, tricks and busting myths


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Cooling o period - you have the right to cool o

when you purchase insurance. This means thatyou can return these products and get a full refundif you change your mind. The right to cool o mustbe clearly set out in the product disclosurestatement.

When obtaining any life insurance product, askthese key ques ons:- Whats Covered? - Whats not covered? - How much will I be paid in the event of a claim? - What will the insurance premiums cost now and later?

Consider ge ng a policy with index-linked coverso you know the cover will keep up with in a on.

Consider a non-cancellable policy; otherwisecompanies may reassess your health or otherfactors on each renewal, possibly raising yourpremiums or refusing to con nue cover.

O set clauses allow most insurers to reducepayouts if you have other income (for example,sick pay from your employer or Centrelink bene ts).Check the relevant sec on of the policy fordetails.

Trauma and TPD Insurance claims already paid toyou will usually reduce the amount paid out whenyou die if they are linked to the Life Insurance.Consider stand-alone Trauma and TPD or select thebuy-back op on which will be explained in the PDS.

With Income, TPD and Trauma Insurance checkthe wai ng period (how long before you receivepayment, o en 30 or 90 days) and the bene tperiod (how long will payments be made typically two years or some mes un l yournormal re rement age).

Some Income Protec on Insurance policies payout if youre unable to perform your normaloccupa on; others only pay if you cant performany occupa on for which youre suited by educa on,training or experience.

Trauma Insurance: check policy wording to seewhat medical condi ons and illnesses are covered.Some condi ons arent covered for the rst threemonths and you may not be covered for elec vesurgery.

Taking the next step

For many people life insuranceis the missing piece in their

nancial plan.

Hopefully this guide has helpedyou understand the vital role lifeinsurance plays, and combined withthe knowledge that life insuranceis a ordable and dependable, youwill be ready to take the next steptoward protec ng yourself and yourfamily.

One of the most rewarding aspectsof having life insurance is peace of mind. Once its in place, you canrest easy in the knowledge thatwhatever happens your nancial

plans are nancially secure.

If you want more informa on orrequire anything explained in thisdocument, please feel free to callyour mortgage broker, who can directyou to an insurance specialist.

WarningThe advice in this brochure does not take intoaccount your objec ves, nancial situa on or needs.Before ac ng on anything in this brochure, youshould consider whether it is appropriate for you, inlight of your objec ves, nancial situa on or needs.Every life insurance product will have a ProductDisclosure Statement created by the insurer that youshould read carefully before making a decision aboutthat product. Any guidelines or ps in this brochurethat suggest ways to calculate appropriate cover

are general only. If you have any ques ons aboutappropriate levels or types of insurance cover, youshould speak to a properly authorised adviser.


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Glossary

Accidental Injury bene t Some Li e Insurance policies will advance the Death bene t i you su er a listed injury.

Accidental Death Cover A limited policy that only pays claims i you die in an accident.

Adviser ( nancial adviser) Authorised by the Australian Securities and Investments Commission to provideadvice and sell nancial products, including li e insurance products.

Agreed Value Policy The payment you would receive in the event o claim on an Income ProtectionInsurance policy is agreed at a set amount (you provide nancial evidence duringthe application). This is particularly use ul or people with varying salaries, e.g. sel -employed people.

Bene t payment The amount o money your insurance product pays, either as a lump sum, or a regular instalment.

Bene t period Feature o Income Protection Insurance, and is the period over which the insurancepays you in the event o a longer term claim, e.g. a 5 year bene t would mean youwould continue to receive payments or 5 years in the event you were unable towork or that period.

Broker (li e insurance broker) Authorised by the Australian Securities and Investments Commission to provideadvice and sell nancial products, including li e insurance products.

Claim To apply or unds because an event you have experienced quali es you to receivea bene t payment.

Cooling o period A short period immediately a ter you have purchased a policy, during which youcan cancel the policy without any nancial penalty (usually 28 days).

Cover levels The amount o money you will receive should you make a claim.

Death bene t The amount o money a Li e Insurance policy is set to pay your nominatedbene ciaries in the event o your death.

Duty o disclosure Your duty to provide complete and honest answers to all the questions the insurerasks you when you apply or a li e insurance product.

Exclusions Some policies exclude certain events or conditions, e.g. Li e Insurance will have a

suicide exclusion or the rst 13 months.Expiry ages Some policies expire when you reach a speci ed age, or Li e Insurance this is

usually age 99.

Funeral Expenses Most Li e Insurance policies provide an immediate payment to cover uneral expenses.

Future insurability Permits you in increase your amount o insurance cover in the uture without anymedical requirements. Typically the increase is tied to personal events, e.g. at thebirth o a child you can increase cover without medical requirements.


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General insurance Insurance or assets like cars, homes, travel, and home contents.

Health insurance Insurance or private hospital stays and medical procedures not covered by Medicare.

Increasing Claims An optional and crucial eature o Income Protection Insurance policies. In theevent o a claim the amount you receive each year is increased in line with infation.

Without this eature during a long term claim your income would not increase anda ect your standard o living.

Increasing cover withinfation

All li e insurance policies have a eature that automatically increases the bene tpayment with infation.

Indemnity style policy With Income Protection Insurance this means in the event o a claim you must proveyour income (rather than during the application). For people with regular salariesthis can save up to 20 per cent on Income Protection Insurance premiums.

Infation Protection Some li e insurance policies have a eature that automatically increases the bene tpayment with infation. (See increasing cover with infation).

Insurance bene t Same as bene t payment.

Interim cover As soon as an application or insurance is lodged interim cover will be in place. With Li e Insurance this will mean accidental death cover is in place while theapplication is underwritten.

Product Disclosure Statement(PDS)

Law requires insurers to include all the terms and conditions o the insuranceproduct in a single document, known as the product disclosure statement (PDS).

Always read this document care ully be ore buying insurance.

Plan exclusions See exclusions.

Policy The insurance contract with the insurer, provided to the policy owner.

Policy Owner Owner o an insurance policy.

Premium The monthly, quarterly, or annual ee or the insurance policy.

Premium Waiver In the event o a claim the premiums on the policy are not payable.

Terminal Illness bene t A eature o Li e Insurance policies, i you are diagnosed with a terminal illness andhave less than 12 months to live you can claim on your Li e Insurance policy.

Upgrade Guarantee This is a eature o some li e insurance policies, that automatically updates thepolicy with new eatures or bene ts incorporated a ter the policy was established.

Waiting period For Income Protection Insurance this is how long you must be unable to work dueto sickness or injury be ore the Income Protection Insurance payments begin. E.g.with a 30 day waiting period you would have to be unable to work or 31 daysbe ore being able to claim.


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simple guide to life insurance

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