Understanding How Life Insurance Works

Life insurance offers peace of mind by providing financial support to your loved ones if you pass away or become terminally ill. Here’s how it works and what you should consider when choosing a policy.

What Is Life Insurance?

Life insurance pays out a lump sum to your beneficiaries if you die or are diagnosed with a terminal illness and have less than 12–24 months to live (depending on the insurer). This payout can help cover expenses like:

• Mortgage repayments
• Daily living costs
• Debts
• Education expenses
• Funeral costs

How to Buy Life Insurance

There are a few different ways to get life insurance:

1. Through a Financial Adviser or Insurance Broker
   These professionals can help you compare policies and tailor cover to suit your needs.
2. Direct from an Insurer
   You can buy a policy online or over the phone without personal advice. It’s quick, but make sure to read the product disclosure statement (PDS) carefully.
3. Through Your Superannuation
   Many super funds automatically include life insurance. Premiums are paid from your super balance, which can be convenient, but cover levels may be lower than if you buy a policy yourself.

What Life Insurance Covers

A typical life insurance policy pays out a lump sum if:

• You die; or
• You’re diagnosed with a terminal illness and have a limited time to live.

Make sure to check your insurer’s definition of “terminal illness,” as this can vary.

What’s Not Covered (Exclusions)

Policies often have exclusions. For example, a claim might not be paid if:

• Death occurs due to suicide within a specified period (usually 13 months)
• You didn’t disclose relevant health information when applying
• The event occurred outside the policy terms

Always review the PDS to understand what’s covered and what’s excluded.

Life Insurance Through Super – Pros and Cons

Benefits:

• Often cheaper due to group discounts
• Easier to get cover without medical checks
• Premiums are paid from your super balance, not your take-home pay

Drawbacks:

• Limited cover might not be enough for your needs
• Payouts can be delayed due to super fund processes
• If you change or leave your job, your cover may stop

Choosing the Right Life Insurance

When selecting a policy, think about:

• How much cover your family would need to manage financially
• Whether you want cover inside or outside super
• Policy flexibility, including your ability to increase cover or change beneficiaries
• The cost of premiums and whether they increase over time

You may also want to compare multiple policies to find the right balance between cover and cost.

Book in for a complimentary initial consultation with one of our Fiducian Financial Advisers, if you’d like assistance in buying life insurance coverage.

Source: moneysmart.gov.au

Lindale Insurances Pty Ltd ATF Lindale Insurances Trust ABN 27 027 421 832 is a Franchisee of Fiducian Financial Services Pty Ltd, Level 4, 1 York Street, Sydney NSW 2000. AFSL 231103 ABN 46 094 765 134.

The information (including taxation) provided on this website is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice and consider a Product Disclosure Statement.

Disclaimer: The views expressed in this publication are solely those of the author; they are not reflective or indicative of Fiducian. They cannot be reproduced in any form without the express written consent of the author.