Pakenham, Cranbourne & Beaconsfield

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Life Insurance

What is life insurance

Do you have other people who are financially dependant on you? How will they cope without you? Most people think of paying off the mortgage but is that enough? Can life insurance be used to replace your income?  How do I know how much Life Insurance is enough?  Which Life insurance company should I use? We can help you answer these and many other questions.

Australia has a serious under insurance problem. It’s not a “no insurance” problem. Yes, you might have some life insurance cover in your ‘work super’ but the only regulation around that is a minimum level of cover reducing from $50,000 for workers under 35 in a default fund. You might have more but it’s never safe to assume! Plan your family’s financial security, don’t leave it to chance.

Life Insurance

Life Insurance provides a lump sum benefit on the death of the person insured.

The majority of policies now include a Terminal Illness Benefit. This means your life insurance policy pays out if you suffer a medical condition where the prognosis is death within 12 months (some insurers specify 6 months)

Both benefits are not paid, the life cover lapses if a Terminal illness benefit for full policy value is paid.

Entry Age

A new Life Insurance policy is normally available to persons between the age of 16 to 75

Expiry

Cover that is fully medically underwritten is “guaranteed renewable”. Once the insurer has accepted the client they cannot cancel the cover unless the client stops paying premiums.

As long as premiums continue to be paid cover can stay in place until the last anniversary of the policy prior to the insured’s 100th birthday

Level of cover

This is the amount the client applies for. The minimum is normally $50,000 or the amount related to a minimum premium, for instance $220 per annum. There is no maximum however insurers do not want to provide windfall benefits and can ask for financial information to justify large sums insured.

Premium Options

Premiums can either be stepped or level.

Stepped premiums increase annually on each policy anniversary as the insured gets older.

Level premiums remain constant (apart from increase in cover due to CPI ) for the life of  the policy until the insured reaches age 65. Most insurers have level premiums revert to stepped when the insured reaches age 65.

Level premiums are more expensive than stepped premiums. As stepped premiums increase each year there is a ‘crossover point’  where the stepped premium becomes more expensive than the level. This can be between 5 and 10 years and is client specific. Each client’s circumstances and needs must be considered when deciding between stepped and level premiums.

Who is Life Cover appropriate for

Life cover is essential for any person who has family or business associates who have a financial dependence on them.

The life insurance pay out is used to offset the financial loss resulting from the insured person’s death.

In a personal context life insurance can be used to:-

  • Pay off a mortgage or other debt on the death of a breadwinner.
  • Invest to provide an income to support the family after the death of a breadwinner
  • Pay off a mortgage on the death of a homemaker to allow the breadwinner to spend more time with their children or afford childcare
  • Provide or increase the value of an estate

In a business context life insurance can be used to:-

  • Fund business succession in a Buy/Sell agreements
  • Replace lost revenue on the death of a ‘key person’ to the business
  • Payout business debt
  • Protect personal assets supporting business lending facilities by way of Guarantees
  • Fund the equalisation of an estate

Policy Ownership

The three driving factors on determining policy ownership are

The right person(s) get the right amount of money at the right time.

Should policies be jointly owned, held through a trust, nominate a beneficiary, be owned via a superannuation fund or self owned by the insured person?

Each option has potentially different taxation treatment, provides a varying level of certainty as to who ultimately receives the payment and how fast this occurs.

For instance, a self owned policy may not be paid to beneficiaries until Probate has been issued whereas a policy jointly owned can be paid to the surviving owner as soon as the insurer approves a claim.

Policy ownership needs to be thoroughly considered for each client’s circumstances and needs.

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