In today’s times of economic uncertainties, it has become vitally important to protect our family financially as well as emotionally. Buying a life insurance is a crucial step to ensure that our family is protected in that manner.
Getting this type of insurance is a process, a series of steps that involves important decision-making. Before one commits on buying a life insurance in Australia, one must first learn and understand its basics – what it is really all about, its benefits, its purpose and getting the right quote.
What is Life Insurance?
Life insurance is a contract between the insured or insurance policy holder and the insurer, where the insurer agrees to pay a previously decided lump sum of money (the “benefits”) to the insured person’s designated beneficiary upon the death of the insured person. Depending on the contract, the policy generally covers death by accident or physical disability due to some trauma and other events such as terminal illness or critical illness.
The policy holder typically agrees to pay a stipulated amount of money called a premium, either regularly for a stipulated period according to the insurance policy or as a lump sum.
What is the Purpose of Life Insurance?
The main purpose of life insurance is basically to provide security to your beneficiaries in the event of your death. Like all insurance, it provides protection for your family from the risk of financial ruin when you die. It also provides your beneficiaries with the necessary funds to settle your financial obligations and to cover the loss of income created by your death. In some cases, the insurance money also covers the funeral costs.
But if you are interested in estate planning, cash accumulation, wealth transfer, and estate tax liquidity, life insurance can also help you achieve these goals.
What are the Benefits of Life Insurance?
- For the policy owner, the benefit is “peace of mind” in knowing that the death of the insured person will not result in financial hardship for loved ones
- Provide financial security to families in the event of a spouse or parent dying as a good insurance policy should cover your family’s two biggest expenses: mortgage and education
- For the policy owner, he/she can use the policy as collateral for a loan so one can access additional funds. This is especially beneficial to the policy owner who no longer has a need for coverage but the policy is still in force. He will be able to take out a loan while he is still alive to supplement retirement, take a vacation, or pay unexpected bills.
- For the policy owner, one can also designate his life insurance proceeds as money to settle his estate, though settling of one’s estate always happens after one dies. In this way, one can plan for it while one is still alive.
- The policy could also be used as a tool to keep valuable property from being sold in order to pay taxes as the policy could be used to pay taxes.
How is life insurance quote priced or calculated?
Its rates are based on:
- The insured’s life expectancy
- The face amount you request (protection or death benefit)
- The length of the policy, whether it’s the duration of your life (permanent life) or a specific period (term life)
One’s current and past health conditions can greatly impact life expectancy, so insurers want to know as much as possible about one’s health condition. So buy as early as you can – buy when you’re healthy – but don’t buy until you have dependents.
Common conditions that raise your premiums or even result in your being declined are high blood pressure, heart disease, obesity, cancer, and depression. Insurance buyers with severe health conditions or a combination of conditions would find it hard to find this insurance.
Based on a person’s medical history, the insured people are grouped into categories such as “preferred plus,” “preferred,” “standard” and “substandard.” The premiums are ultimately determined by the category.
The “death benefit” is the amount of money your family or beneficiary receives after your death. This is the amount for which you are insured. This is calculated to cover your specific financial circumstances – your dependents, debts, and standard of living should all be taken into account. Of course, the more the death benefit is, the more expensive the policy will be.