What is life insurance and how does it work?
What is life insurance?
Life insurance is intended to protect your family if something unexpected were to happen to you. Different life insurance products are intended to protect you and your loved ones in a range of circumstances. A lump sum will be paid to your designated beneficiary upon the unexpected circumstances such as the diagnosis of a terminal illness, or death. Other forms of insurance such as income protection insurance, health insurance and funeral insurance are often bundled with life insurance however they cover different events.
How much cover do I need?
The amount of cover required is dependent on your personal circumstances. Factors that must be considered include:
Personal details such as age, sex, smoking status and number dependents
Amount of debt (mortgage, loans, credit cards, etc.)
Expenses (ongoing living expenses, cost of dependents, funeral costs)
Income and assets
Why should I take out life insurance?
Most people who have life insurance find it comforting to know that their loved ones will be supported in the occurrence of unforeseen events.
Nominating a beneficiary:
You may nominate a beneficiary when creating your insurance policy. This is a designated person(s) that will receive any money or benefits such as the lump sum pay out to pay for expenses. To do so, you may have to fill out a Nomination of Beneficiaries Form. If you do not choose anyone to receive the policy benefits, the sum will be paid to a legal representative or other eligible person set out in the Life Insurance Act 1995.
Is a medical exam required?
Most comprehensive life insurance policies may require the individual to undertake a medical exam prior to making the finalised policy.
How much does it cost?
The premiums related to life insurance policies will be dependent on your age, health, occupation and cover amount.
For more information, visit our aged care financial planning page. When can a claim be made?
Upon the death of the policy holder, a lump sum will be paid. A portion of this may be fast tracked to help pay for funeral expenses, however the full sum is often not paid until after the funeral. Most life insurance policies may provide an early payment for death cover provided that a relevant medical expert has provided the policy holder with a terminal diagnosis (12 months).
Are there any exclusions?
Typical life insurance policies may exclude the following circumstances in their policies:
High risk occupations
Suicide
Hazardous hobbies
Death attributed to war
Failure to disclose information
Health Insurance
What is health insurance?
Health insurance helps cover the cost of medical expenses. In Australia, Medicare covers most Australians for their health care needs. However, its coverage is limited, and you may choose to take out private health insurance to give yourself a wider range of cover for health-related issues. Most private health care policies are divided into two types:
Hospital cover (this helps to cover the expense of in-hospital treatment and accommodation)
Extras cover (this includes services that are not covered by Medicare such as dental, optical, and physiotherapy)
These may be bought separately or combined in a package. Different private health insurance policies will cover different services, which may be customisable.
How much cover do I need?
The coverage depends on the types of services that you would like to be made available to you.
Why should I take out health insurance?
Private health insurance helps to reduce the cost of services that are not covered by Medicare. It subsidises the cost of these services in exchange for a nominal fee.
Are pre-existing medical conditions covered by private health insurance?
Individuals with pre-existing conditions cannot be refused health insurance coverage. Instead, under the Private Health Insurance Act 2007, the insurer may impose a 12-month waiting period on benefits for treatment of the pre-existing condition. Once an individual has been on their health insurance policy for a minimum period of 12 months, the waiting period no longer applies and they will be entitled to the full coverage of the insurance policy.
A pre-existing condition refers to any illness or condition where the signs and symptoms have existed at any time in the past 6 months from the date of the creation of the insurance policy, in the opinion of a medical professional. Exceptions to the 12-month wait period include psychiatric care, rehabilitation and palliative care. These have a two-month waiting period.
How much does it cost? The cost of health insurance differs based on the amount of coverage that you have chosen.
For more information, visit our aged care financial planning page.
Funeral Insurance
What is funeral insurance? Funeral insurance provides your family and loved ones with a lump sum following your death to pay for expenses such as the funeral and any outstanding debts.
How much cover do I need?
You can choose the cover amount to suit you, which will require you to consider:
Amount of debt (mortgage, loans, credit cards, etc.)
Income and assets
Cost of the funeral
Why should I take out funeral insurance?
Taking out funeral insurance relieves the burden that may be placed on your loved ones following your death. It ensures that enough money is available to pay for the relevant expenses following your death.
Nominating a beneficiary:
You may nominate a beneficiary when creating your insurance policy. This is a designated person(s) that will receive any money or benefits such as the lump sum pay out to pay for the funeral expenses. To do so, you may have to fill out a Nomination of Beneficiaries Form. If you do not choose anyone to receive the policy benefits, the sum will be paid to a legal representative or other eligible person set out in the Life Insurance Act 1995.
Is a medical exam required?
No medical exam is required to take out funeral insurance for most policies.
How much does it cost? The cost of funeral insurance will be dependent on the amount of cover taken out. Often the premiums may be slightly higher than that of life insurance policies.
For more information, visit our aged care financial planning page.
When can a claim be made?
Often the benefit payment will be processed as soon as the claim has been approved. This means that you should receive the money before the funeral, to cover the costs.
The benefits for an ‘accidental death’ may be significantly larger than death due to old age or terminal illness.
To make a claim you may be required to submit a number of documents including:
A completed claim form
A certified copy of evidence of death
A certified copy of the deceased’s date of birth
A certified copy of the claimant’s identity
Websites that will compare insurance policies for me:
