life insurance faqs

Are you wondering if life insurance is right for you? We understand how essential it is to get it right, so we’ve answered some of the most-asked life insurance questions. 

What is life insurance?

Life insurance is a financial product that is a safety net for your loved ones in the unfortunate event of your passing. The payment is a contract between you (the policyholder) and an insurance company (the insurer) designed to give financial security to the policyholder’s beneficiaries or estate. 

How many types of Life Insurance are there in Australia?

Life insurance in Australia offers a comforting safety net for your loved ones. There are 2 main types of life insurance products available, unitised and fixed

Unitised Cover

For this type of cover, you pay a set price for each unit of cover you hold Here’s how it works:

  • Each unit of cover you purchase corresponds to a specific cover amount determined by your age and occupation.
  •  The cost for each unit of cover remains the same as you age, but the benefit amount you are covered for reduces over time.

Fixed Cover

For those seeking certainty as to the amount you are covered for fixed cover is more appropriate type of cover. Here is how it works:

  • The amount you are covered for remains fixed for the life of the policy. It provides you with certainty knowing the benefit amount that will be paid out in the event of a claim.
  • The premium for fixed cover generally increases over time

Choosing the best type of cover for you will be based on your specific circumstances. Seeking guidance and advice from K Partners can help you navigate these complexities and find the cover that aligns perfectly with your needs.

How much life insurance coverage do I need?

While there is no general rule to decide on the amount of cover you require, these are certain factors to consider when dedicing how much cover is appropriate:

  • Number of dependents 
  • Debts 
  • Savings and investments: 
  • Future goals

For more information, have a look on our latest post: How much does life insurance cost in Australia

How does life insurance work?

In Australia, life insurance provides financial protection to the policyholder and their beneficiaries in the event of their death or terminal illness. Here’s how it generally works:

  1. Choosing a Policy: The policyholder selects a life insurance policy based on their needs and budget. 
  2. Paying Premiums: The policyholder pays regular premiums to the insurance company to keep the policy active. The amount is determined by the policyholder’s age, health, and coverage type.
  3. Policy Coverage: If the policyholder passes away or is diagnosed with a terminal illness during the policy term, the insurance company pays out a lump sum benefit to the policyholder’s beneficiaries or estate.
  4. Policy Exclusions and Limitations: Some policies may not cover death or illness resulting from certain pre-existing conditions or risky activities.
  5. Reviewing and Updating Coverage: The policyholder may need to review and update their life insurance coverage to ensure it remains adequate for their needs. 
  6. Life Insurance Claim Process: In the event of a claim, the policyholder’s beneficiaries or estate must contact the insurance company to initiate the claims process. The insurer will then assess the claim and, if approved, pay out the benefit to the designated beneficiaries.

How to make a life insurance claim?

Making  a life insurance claim in Australia can feel overwhelming during a difficult time. Here’s a breakdown of the general process to help you navigate it:

1. Contact the Insurer:  The first step is to get in touch with the life insurance company you hold the policy with. 

2. Gather Necessary Documents:  The insurer will provide a list of documents needed to process your claim. This typically includes:

  • Death certificate: A certified copy of the deceased’s death certificate.
  • Policy details: Your life insurance policy documents or policy number.
  • Proof of beneficiary: Documents confirming the designated beneficiary.

3. Complete the Claim Forms:  The insurance company will provide claim forms that need to be filled out accurately and completely. 

4. Submit Your Claim: Submit all gathered forms and documents to the insurer.

5. Claim Assessment:  The insurer will review your claim and all the documentation provided. 

6. Claim Outcome: Once the insurer has completed its assessment, they will notify you of the claim decision. 

Additional Tip:

  • Keep Copies: Maintain copies of all documents you submit to the insurer for your records.

What are the benefits of purchasing life insurance through superannuation?

There are several potential benefits to purchasing life insurance through superannuation:

Convenience:

  • Premiums are deducted directly from your super account, eliminating the need for separate bills or the risk of non-payment and a policy lapse.
  • Depending on your tax bracket, contributions towards life insurance premiums within super may be taxed at a concessional rate (typically 15%) compared to your marginal tax rate.

Accessibility:

  • Basic cover through super might be available without a medical exam, which can be a hurdle for some people with pre-existing conditions when applying for individual policies.

Potential Disadvantages of Life Insurance Through Superannuation:

Limited Coverage Options

  • Life insurance offered through super might have limitations on coverage amounts or may not offer all the same types of cover (e.g., income protection) as standalone policies.

Less Flexibility

  • Changing your level of coverage or switching providers might be more complex than individual policies.
  • The death benefit is typically paid into your super fund and, depending on your circumstances may be subject to tax implications upon withdrawal.

What factors should I consider when choosing a life insurance company?

Choosing a life insurance company involves finding a balance between security, affordability, and features that align with your needs. Here are some key factors to consider:

Financial Strength and Reputation

Check the company’s financial stability ratings. An insurer with a strong rating indicates the company’s ability to meet its financial obligations. We also recommend looking for positive customer reviews and a history of honouring claims.

Coverage Options and Flexibility

Does the company offer a variety of life insurance products? Consider your desired coverage type and ensure they have a suitable option. Does the policy allow you to adjust coverage amounts or add additional benefits?

Cost and Premiums

Get quotes from several different life insurance companies to compare premium rates. When comparing prices, consider factors like your age, health, and desired coverage amount. Take the time to understand how premiums will change over time.

Customer Service

Read reviews or inquire about the company’s claims process. Is it efficient and fair? How easy is it to get in touch with customer service? Do they offer multiple contact methods like phone, online chat, or in-person support?

Additional Consideration

Does the company align with your values? 

What’s the difference between Life Insurance & Income Protection?

Income protection and Life Insurance are both financial security tools, but they address different needs:

Life Insurance:

  • Focus: Provides a financial safety net for your loved ones in case of your passing.
  • Payout: Pays a lump sum of money (death benefit) to a designated beneficiary upon death.
  • Benefits:
  • Helps cover expenses like mortgage payments, living expenses, education costs, and outstanding debts.
  • Provides financial security for your dependents during a difficult time.

Income Protection:

  • Focus: Replaces a portion of your income if you cannot work due to illness or injury.
  • Payout: Pays a monthly benefit for a set period (depending on the policy) or until you reach a certain age.
  • Benefits:
  • It helps maintain your standard of living if you can’t work due to health reasons.
  • Ensures you can continue meeting your financial obligations like mortgage payments and bills.
  • Eligibility: Typically requires you to be employed and working a minimum number of hours per week.

Is life insurance tax-deductible?

In Australia, the tax deductibility of life insurance premiums depends on whether you purchase the policy directly or through your superannuation (super) fund. 

Is life insurance for all ages?

When looking at how age affects list insurance, it isn’t necessarily for all ages, but depends on your circumstances, it can be beneficial at various stages of life. There’s no one-size-fits-all answer; the best age to get life insurance depends on your unique circumstances.  

Can I have multiple life insurance policies?

Absolutely! You can have multiple life insurance policies in Australia. There’s no legal limit on the number you can hold.

Can I change my life insurance policy after purchasing it?

Yes, you often have some flexibility to change your life insurance policy after purchasing it, but the options and limitations will depend on the specific policy and insurer.

Are there any circumstances where life insurance won’t pay out?

Life insurance isn’t a guaranteed payout, and there are situations where a claim might be denied. Here are some common scenarios:

  • Non-payment of Premiums
  • Death Caused by Excluded Activities
  • Misrepresentation of Information:
  • Policy Lapse

How often should you have your insurance reviewed?

You schedule an insurance policy review every year and whenever you experience one of the life-changing events listed below. At the very least we encourage everyone to review your insurances every two years.

If you have any concerns about your policy coverage or exclusions, it’s always best to contact your life insurance company directly for clarification.

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