Basic Factors to Consider Before Buying Life Insurance
Buying life insurance is an important financial risk management strategy. Here are the basic factors you should consider before you buy any life insurance cover.
1. How much cover you need
The amount of life insurance cover that you need depends on a range of factors, including:
- your individual financial circumstances,
- your stage of life, and
- whether or not you have financial dependents.
If you have a significant level of debt and/or people who depend on you financially (such as young children), you’ll need a higher level of life insurance cover than someone that doesn’t.
2. The type of cover you need
There are different types of life insurance cover available, including:
- death cover,
- total and permanent disablement cover,
- income protection cover (that protects you if you’re unable to work due to injury or illness),
- trauma cover (that helps cover the costs of your rehabilitation if you suffer a major trauma such as a heart attack or stroke).
3. The cost of the cover
Once you have decided on the amount and type/s of life insurance cover that you need, it’s important to obtain quotes from different providers to compare costs. The cost of insurance coverage includes the premiums and any fees that you might be charged.
There are two basic types of insurance premiums: level and stepped. Level premiums tend to be higher than stepped premiums initially, but they don’t increase as you age (other than adjustments for inflation).
Stepped premiums on the other hand increase as you age, so they are more expensive the longer your policy is active. It’s important to consider the long-term affordability of insurance policies that have stepped premiums.
Besides age, other factors that could affect the cost of your life insurance premiums include:
- your gender,
- whether you engage in risky activities (for example, if you have a dangerous job),
- whether you’re a smoker, and
- your medical history.
4. Policy terms and conditions
It’s also important to thoroughly evaluate life insurance policy terms and conditions before you buy. Insurers have a legal obligation to provide you with their product disclosure statement (PDS) before you buy one of their products. The PDS must disclose any policy terms and conditions, such as:
- the events or illnesses covered,
- any exclusions that will affect the payment of policy benefits, and
- all fees that the insurer may charge for providing the coverage.
5. Whether you need to have a medical exam or provide your medical history
Some insurers will require you to undergo a medical exam or to provide your medical history before assessing whether or not to provide you with coverage. They may impose policy exclusions based on your medical history, or they may choose not to insure you at all.
If an insurance company doesn’t require a medical exam or any medical history from you, be aware that their coverage may be more expensive, or it may contain exclusions for pre-existing medical conditions.
It’s important to understand that you have a duty of disclosure if an insurer requests any information (including your medical history) as part of assessing your life insurance policy application. This means that you must provide information that you know (or could reasonably be expected to know) that could affect the insurer’s decision about whether or not to insure you, and/or the terms and conditions that they may wish to impose on the coverage they may agree to provide. Failure to do so could affect your potential payout if you make a future claim on the life insurance policy.
How we can help
At Qi Wealth, our experienced, expert team of insurance specialists can help to ensure that you have the right level of life insurance coverage to meet your needs and the needs of your loved ones. We can also help you arrange life insurance coverage via your self-managed super fund (SMSF) if you are a member of one. We’ll take the time to understand your individual circumstances so that we can provide you with the best possible advice. We develop long-term, trusted relationships with our clients.
Contact us today to find out how we can help you!