Have you written your Will yet? These words alone have sent my husband running to do some shopping, fix the car or anything other than answer the question. I have packed it in his bag to take to work and put it on top of his favourite motorbike magazine but it still remained blank.
I don’t blame him, who wants to discuss or think about death or what our loved ones will do if something happens to us?
Lets face facts though, we have a two year old and a seventeen year old and need to have the just in case plans in place. When sitting down to write our Will it became clear that we really need to think about what financial provisions we have in place for our children if something should happen to us, or if we aren’t able to work due to accident or illness. Would our super even cover the expenses that would be incurred raising and educating our children?
How important is life insurance ?
So many questions and ones that a lot of people aren’t sure of , so I asked Sally from Life Insurance comparison to provide us with some information and here is what Sally (our guest post contributor) had to say.
- When Life Insurance Through Your Super Isn’t Enough
Arranging life insurance through your superannuation fund is an easy and convenient way to manage your policy, but for many people won’t provide an adequate level of protection if the policyholder dies or cannot work due to an accident, illness or disability. Here are some of the potential downsides to relying solely on life insurance cover through your super fund.
The Disadvantages of Life Insurance Through Your Super
There are some definite advantages of having life insurance through your superannuation fund, especially if your budget means that this is the only realistic way to have any cover at all. However, there are some cons that you need to be aware of, including:
The Cover May Be Less Extensive
The type of insurance that is available through your superannuation fund will not necessarily be as broad as you could get elsewhere, and your level of cover may also be less. Death cover, Total and Permanent Disability (TPD) cover and Income Protection Insurance are usually available through your super fund but there is no option to buy Trauma insurance.
The Level of Cover Can Be Low
Most of the time, there will be a minimum or default level of cover that is set by the superannuation fund. This is often on the low side, although you can choose to increase it. According to statistics by CANSTAR, over 80 per cent of superannuation fund members only opt for the default level of cover and do not go up from this. The advantage of default cover is that you will often avoid having to have medical checks or for your premiums to be affected by pre-existing health conditions but the trade-off is that you’re only receiving basic cover, which won’t be adequate for most families if the worst happens.
Your Beneficiaries Aren’t Guaranteed to Receive the Benefits
The main reason for having life insurance is to protect your family from financial difficulties if you were to die or become seriously ill but there are no guarantees that your life insurance benefits will actually go to the intended recipients, unless you have been able to nominate a binding beneficiary.
You Are Depleting Your Retirement Fund
Because premiums come out of your superannuation fund, you are limiting the amount of money that will be available to you in retirement, which could become an issue further down the line.
Your superannuation balance could be further depleted if you’re with one of the funds that charges over the odds for life insurance premiums. Research carried out in 2014 found that some superannuation funds have significantly increased the costs of premiums, and that the gap between the extreme ends of the spectrum can be around $1500 per year. Over time, this can have a big impact on your retirement savings.
How Much is Enough?
The amount of life insurance that you will need depends on your individual circumstances but as a general rule of thumb, it will need to provide you with enough income to continue to meet your outgoings if the main earner in the household is unable to work. This should include things like rent and mortgage payments, bills, debt, and other regular and one-off expenses that will become important in the future.
Ideally, you’ll need to be prepared for the possibility that your life insurance may need to cover many years of expenditure, so you don’t want to be caught out if this turns out to be the case and you won’t get enough income to be financially protected. Many people who rely solely on the life insurance provided through their superannuation fund unfortunately find out too late that the amount of income that they will receive is not nearly enough for what they need.
What Happens if You Need More Protection?
If you are worried that you don’t have enough life insurance protection from your superannuation fund, you may want to think about buying additional cover to offer greater peace of mind. This can help you to buy enough life insurance cover to bridge the shortfall between what you currently have and the amount that you ultimately need.
There are a couple of options here: you can upgrade the amount of cover that you have through your super, or you can shop around for the right kind of policy with a life insurer of your choice.