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Life Insurance
Life insurance is a policy that will pay a specified sum of money to the estate of the insured or nominated beneficiary upon the death of the life insured. In exchange, the insured person agrees to make regular payments of life insurance premiums (on a monthly or quarterly basis) to the. The life insurance policy is subject to strict limitations, exclusions, terms and conditions and it is therefore extremely important for you to know the life insurance policy limitations, exclusions, terms and conditions before you sign the contract. You should seek advice from a licensed insurance adviser prior to signing any life insurance policy document.
Do you need this type of insurance?
Have you ever thought how your family would cope financially if you were to pass away unexpectedly? You should regularly review your family's financial obligations, in conjunction with your life insurance adviser, to ensure that you are appropriately insured. The greater your financial obligations and the more dependants you have, the more life insurance you may need to protect your assets and your family's financial security. Obligations which may need to be considered are your mortgage, paying for your children’s future education, settlement of personal debts, funeral expenses and your family's future living expenses.
How much life insurance cover do I need?
The purpose of life insurance is to provide your dependents with a sum of money sufficient to pay out your debts and/or to provide an income sufficient to support your family for a period of time - usually until your children are 18 years old. As everyone's situation is different, the level of life insurance cover required will vary. Most risk advisors will recommend that you have life cover equivalent to a minimum of 10 times your average annual income.
How do you choose the right life insurance policy?
It is best to talk to a life insurance adviser who has access to a wide range of competitive life insurance products. They have the experience and expertise to guide you in choosing the right life insurance policy for your particular situation and budget. Life insurance premiums vary depending on age and health history. Your life insurance adviser can provide a guide on the premiums from a range of life insurance companies but your application will need go through a process called underwriting where your application will be formally assessed by the life insurer and your final premium calculated. You will need to be comfortable in investing these premiums into a reputable, stable, financially sound company. Most people rely on one of the major rating agencies such as Standard & Poor’s who specialize in rating the ability of a company to meet its financial obligations. You should aim to be covered by a life insurance companies with a 'AAA' rating.
Further information
Life insurance is an important and integral part of a comprehensive and sound financial plan. When you enter a life insurance policy it is also best to review your will to ensure it is current. The making of a Will ensures that your assets pass to the people of your choice. If you do not have a will, your estate will be subject to state intestacy laws. This legislation may not be consistent with your wishes. Please refer to the articles on Wills & Estate Planning.
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December 2009
