6 Common Myths About Life Insurance Debunked
Russell Cain Updated: 25 March 2021
Do you know whether your family would be sufficiently provided for if something were to happen to you? Life insurance’s general purpose is to give your family that financial security if you pass away, become terminally ill.
You don’t want to waste your hard-earned dollars by buying insurance you don’t need. You need to beware of some common life insurance myths when determining how much life insurance to buy. Life insurance facts could help you find the right policy to provide for your loved ones in their time of need.
1. As a single person I donât need life insurance
Even if you don’t have kids, a partner or other dependents, your final costs, including funeral expenses, still need to be paid when you pass away. The average funeral in Australia can cost between $4,000 for a basic cremation to around $15,000 for a more extravagant burial.
Alternatively, you could take out a separate funeral cover which typically pays out up to $15,000. This would enable you to take out a lower value life cover (if this benefit is not already included) to pay the other debts you might have as a single person. As with all insurance, the key is to ensure you have the right level of cover for your specific needs.
2. Life insurance is too expensive
The cost of life insurance might come as a surprise to many. Not all life insurance policies are the same. Premiums are influenced by your age, health and lifestyle. As an example, a 30-year-old non-smoking male in New South Wales will pay around $41.56 a month for a $1 million sum insured while a 50-year-old would pay $122.67 for the same cover.
If you want to avoid your estate having to pay your debts and final costs, the investment in an affordable life insurance policy might just be one of the shrewdest decisions you could make.
3. You donât need life insurance until you are much older
There are life insurance policies for people of all ages. A key factor in determining the monthly premium you pay is your age. In general, the younger you are, the lower the premium. However, this may not be the case if you suffer from specific pre-existing conditions.
Despite what some advisors and policies might project as life expectancy, no one can predict how long youâll live. If you have sufficient life insurance, this could go a long way towards paying for your young children’s future education. That 20-year mortgage you recently took out could be paid off, sparing your dependents years of stress.
4. My life cover through my superannuation fund is sufficient
Will your family be sufficiently protected if you die or are unable to work? This is the key question you have to consider when determining whether a group life insurance policy paid for by your superfund is the right option for your needs. This might not always be the case. Another factor to keep in mind is the inevitable erosion of your super fund balance as funds are used to pay for your life insurance premiums.
5. Fully underwritten and partially underwritten policies are the same
Whether a policy is fully or partially underwritten can be very unclear when considering the different types of cover available. Some people may prefer to go for the quicker option, which is partially underwritten cover. Assessments on these types of policy are completed when a claim is made.
Fully underwritten cover takes longer as the insurer asks several questions upfront relating to your health, occupation and lifestyle. You might also be required to undergo a medical exam. These are typically paid for by the insurer and you’ll have the option to go to your GP or a mobile nurse. Still, the payout of the policy is usually far more certain when you or your dependents make a claim.
6. My health condition will disqualify me from obtaining life insurance
You will not be automatically disqualified from getting a life insurance policy if you have a pre-existing medical condition. It is important to disclose all your health conditions during your application process. In some cases, premiums may be affected or there may be some exclusions on your policy for specific conditions. However, working with your broker could smooth this process considerably.
Frequently asked questions & answers
How much cover do I need?
Everyoneâs circumstances are different. The level of cover you need will depend on your personal circumstances, what stage of life youâre at and the type of insurance you are intending to take up.
How do I compare life insurance policies?
You can get quotes online with our unique comparison engine, alternatively a broker, financial adviser or your bank. Whatever route you go remember to compare premiums, features and exclusions to ensure it meets your requirements.
Is life cover worth it?
Everyoneâs circumstances are different and the type and level of cover one needs depends on your unique requirements. If you have loved ones financially dependent or if you have a mortgage, then life cover is generally worth it. The benefits your dependents will receive after your death or terminal illness diagnosis can be used to pay off debts and help to maintain their lifestyle.
