It’s worth giving life insurance the same attention we pay to home and contents or car insurance, says ING DIRECT’s Tim Hewson, as it could be the financial lifeline that keeps your family going.
Are you aware how much life insurance cover you have through your superannuation fund? Like all insurances, it’s essential to have the right level of life cover. Too much and you’re wasting money. Have too little cover, and the people who matter most to you could face financial hardship.
Deciding how much cover is right for you
So how do you decide how much you need? Your personal circumstances are the main factor shaping the level of life cover you require.
For example, if you have kids and a mortgage, your life insurance should, at a minimum, be sufficient to pay off your home loan and other debts (remember, your debts don’t die with you). It should also leave a pool of capital to help your family rebuild their future.
As you progress through life, kids become independent and the family home is steadily paid off. So at this stage chances are you might need a lower level of cover.
To put things in perspective, Rice Warner’s Underinsurance Research Report (December 2013) found that the average Australian couple aged 40, with children, requires life insurance worth approximately 10 times annual earnings just to repay debts and maintain current living standards. Having cover of 15 times annual earnings would provide for a better quality lifestyle.
Your life cover could fall short
The same Rice Warner survey found the median level of life cover in Australia is only 42 percent of the sum needed to fully maintain a family’s standard of living. If you’re unsure about your current level of life insurance, start by getting in touch with your superannuation fund and ask how much cover you have in place (and any other insurance providers if you have taken out insurance outside of superannuation). If it falls short, then you could apply to increase your insurance cover to a level you are more comfortable with.
Bear in mind too, life insurance should always reflect your current circumstances. Put some time aside to do an annual financial health check where you can reassess your lifestyle and commitments.
For example, if you upgrade to a better home – and potentially bigger mortgage, or if a new baby comes on board, it could be worth upgrading your insurance cover to reflect this. An insurance calculator can help you work out how much insurance is appropriate for you.
Like all other aspects of your finances, if you’re unsure of how to proceed then consider speaking to a financial adviser for advice relevant to your situation.
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