Life Insurance Plans

Most people do not like thinking about their own death. Taking out a life insurance policy forces you to do just that; however, it is a necessity if you have a family, dependents and/or debts. Life insurance can cover a number of instances in the event of the policy holder’s death such as payment of debts and income for beneficiaries – in other words, it provides financial security to the policy holder’s loved ones after their passing. Some insurance companies will also provide trauma cover in the case of injury or illness.

Much like any type of insurance, there are various plans and life insurance policies available. Firstly, the policy holder can choose whether to take out life insurance as part of their superannuation plan or purchase a stand alone life insurance policy. While superannuation is generally the cheaper option, it is considered to be insufficient in comparison to a comprehensive stand alone policy, which is why many people choose to take out a stand alone policy on top of their superannuation. Stand alone life insurance policies come in two major forms; term and permanent (also referred to as term life and whole-of-life).

Term life insurance covers the policy holder for a specified amount of time. If the policy holder dies within this term, an agreed sum will be paid to their beneficiaries. If the policy holder is living after the term expires they can choose to renew the insurance for another term. This option tends to be the cheapest as there is usually an age at which the insurer will refuse to renew a term. For many policies it is between ages 65 and 75 years old.

There are options within term life insurance policies, including:

Annually renewable term life insurance – This type of policy allows the holder to renew their coverage each year up to a certain age. Beware – premiums can get increasingly expensive each year as the risk of death becomes greater.

Guaranteed level term life insurance – Considered much more secure than the previous option, guaranteed level life insurance covers the policy holder for a set term, which can be arranged at as low as one year or as high as 30 years. It also eliminates the possibility of the insurer increasing the premium cost.

Return of premium life insurance – If the policy holder is still living when their insurance term ends this option allows for a refund of premiums. Because of this, Return of premium life insurance policies can work out to be a bit more expensive than others.

Permanent or whole-of-life insurance covers the policy holder for their lifetime, with premiums remaining at a fixed cost (any increases are due to inflation). A permanent life insurance policy usually includes an investment portion, which can be paid out after a certain time even if the holder is still alive. Premiums may seem expensive at first when compared to term life insurance policies, but keep in mind that term life insurance premiums continue to increase in price as the holder ages, while permanent life insurance premiums remain the same throughout.

Similar to term policies, there are options within permanent policies, including:

Whole-of-life insurance – This option remains current throughout the policy holder’s lifetime as long as the premiums are paid. Premium prices will generally remain the same for the length of the policy. Whole-of-life insurance coverage also accumulates a cash value, which can be accessed through policy loans and paid back.

Universal life insurance – This allows the policy holder more flexibility regarding premiums (i.e. it can be modified based on changed circumstances).

Survivorship life insurance – With this option, If a couple is insured together the benefit is payable upon the second death.

As the policy holder’s life progresses it is not uncommon for them to alter their life insurance policy based on recent circumstances such as marriage, birth of children or the purchase of property. It’s best to make sure that you have this kind of flexibility with your chosen insurer and policy before taking out life insurance.