Wouldn’t it be great if your family need not worry about the mortgage, paying bills, and living expenses should something unexpected happen to you?
When you get to understand death cover, also called term life insurance, you’ll realise that’s exactly what it offers.
What really is term life insurance?
Term life insurance is an insurance product that covers you for a pre-determined period in the event of death or terminal illness.
The policy expires after a specified period, typically when you reach a certain age.
When applying for life insurance, you must specify a benefit amount, which is the amount you want to be insured for. Suppose you pass away or are diagnosed with a terminal illness. In that case, you or your nominated beneficiaries will be given this lump sum payment to help with ongoing living expenses, school fees, funeral costs, or any other necessary expenses.
Benefits of life insurance
Term life insurance is versatile enough to adjust to ever-changing individual circ*mstances and yet remain affordable.
Flexible Payment and Policy Options
A term life insurance policy is flexible and may be adjusted to meet your changing financial needs. You might ask for a higher coverage amount if your financial obligations are growing, or a lower cover amount if debts and expenses are decreasing.
Affordable Premiums
A term life policy is less expensive since it provides life cover for a specific period. It does not have a cash value component like the phased-out whole-of-life policies. Thus it has no value other than the guaranteed death benefit. But this is what makes your premiums affordable.
According to Canstar, a male non-smoker in his 40s with a sum insured value of $500,000 can expect to pay a monthly direct life insurance premium of $66. While a smoker of the same age and insured for the same amount pays a monthly premium of $134.
Additional Riders
You may customise your term life insurance policy with additional features to suit your personal circ*mstances. But remember that your premiums will increase if you add more features to your term life insurance cover.
TPD Insurance provides a lump sum payment if you become permanently disabled and can no longer work.
Crisis/Trauma Insurance provides a lump sum payout if the life insured is diagnosed with a serious medical condition.
Accidental Death Benefit will pay an additional amount over the coverage lump sum if the cause of your death is an accident.
Guaranteed Insurability increases your existing cover without getting a new medical exam or qualifying again.
Children’s Term Life Insurance can provide a cash benefit for each of your insured children in the event that they pass away or are diagnosed with a terminal illness. Depending on their age and other qualifying restrictions, you may typically add insurance for your child for between $10,000 and $20,000 per year.
What is the difference between whole life insurance and term life insurance?
Earlier, we determined that term life insurance expires after a specified period, and its lump sum benefit is its only value. These two features make the term life cover affordable.
On the other hand, whole life insurance (aka permanent life insurance and universal life insurance) covers you for your entire life with no time or age limits as long as you are still paying premiums. In addition to the death benefit, it provides cash value from its savings component. These two features make whole life insurance typically more expensive than term life cover.
Also, whole life insurance had fixed premiums for the policy’s life, making budgeting easier. While term life insurance offers stepped or level premiums, giving you more flexible payment options.
Ever since the Australian government introduced compulsory superannuation in 1992, whole life insurance has been largely replaced by term life insurance.
How much does term life insurance cost?
Your term life insurance eligibility and rates may be impacted by variables such as your preferred insurer, their policy guidelines and applicable restrictions, and your own circ*mstances. These are aside from the cost variables that insurance companies consider.
Age: You pay a higher premium if you’re older.
Gender: Premium rates vary between genders at different ages.
Occupation: A high-risk profession usually attracts a higher premium.
Pre-existing Medical Conditions: Your health issues and their treatment affect premium cost.
Lifestyle: Risky hobbies and activities like car racing and skydiving raise premiums.
Required Amount and Term Cover: Life insurance premiums depend on how much cover you need. The insurance cost increases as the amount of cover increases.
Smoking Status: Smokers are considered high-risk and have to pay higher premiums. An insurance company may lower premium rates if you stop smoking for at least a year.
Additionally, premiums for life insurance policies can be either stepped or level.
Generally speaking, you save money with a level premium since you never have to worry about it increasing in the long term. In contrast, a stepped premium tends to be more practical in the short term when you are younger.
Stepped Premiums
Stepped premiums increase as you get older. The older you are, the more likely your health will worsen. As a result, your premiums would increase significantly, especially once you reach the age of 50.
Level Premiums
Level premiums do not rise with age. Instead, your rates will be computed based on your age at the time of application. The premium rate will be locked in for the duration of your policy at a fixed rate.
What to consider when taking out Term Life Insurance
Obviously, you need to consider the benefit amount and the additional available features of the insurance policy. You can determine this by considering all important aspects of your family and financial situation, including your lifestyle, income, mortgage, and children’s needs.
Also, consider stepped or level premiums and renewals before making your choice.
Protect Yourself and Your Loved Ones with Coastal Advice Group
Term life insurance is one of the most affordable and flexible life insurance products you can get to safeguard your family from uncertainty.
If you want to know more about how term life insurance works or need personal advice from a professional financial adviser, we’re here to help.
Coastal Advice Group provides specialist financial planning, expert knowledge, and guidance to help you make the right financial decisions. We have offices in Newcastle, the Central Coast, and Port Macquarie.
Call us or book online to secure your first appointment today and get started!
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DISCLAIMER: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circ*mstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group Pty Ltd which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.
