What Questions to Ask when Buying Life Insurance?
Identifying what you want out of life insurance before you buy and knowing the purpose of your life cover will help you choose the best policy. Find out more.
by Leigh-San Mo
Last update 15 Mar 2021
Whether you're new to life insurance or thinking about switching policies, there are a few questions you should ask first.
Not all life insurance policies are the same, and not everyone wants the same thing out of life insurance.
Asking questions is part of doing your research to make sure you've got a life cover policy that meets your expectations.
Start by pinpointing just what it is you want out of life insurance. It's easy to assume that the sole purpose of life cover is to leave money behind for your family, but there's more to it than that. You'll need to identify who you want to leave money to, why you want to leave them money, and how much to leave.
There are plenty of good reasons why you'd like to leave behind a sum of money for your loved ones, such as:
Once you know why you want life insurance, you can better assess the type and amount you will need.
Underinsurance is a problem in Australia, as many people underestimate the amount of money their loved ones need to pay off debts and cover ongoing costs. To figure out how much life insurance you need, take stock of your debts and assets.
Subtract your total assets from your debts to get a starting figure: this is how much you'll need to cover the debt you'll leave behind. If you intend for your insurance benefit to cover regular expenses like groceries, fuel, rent, school fees, and utilities, you'll need to factor those into the equation.
There are four main types of life insurance policies, but the details of each vary by insurer.
You may wish to purchase one policy or bundle multiple policies together, depending on your needs.
All policies are different, so it's important that you read the Product Disclosure Statement (PDS) before purchasing a policy. This document goes into detail about what's included and excluded, along with the terms and conditions of the policy.
If your policy includes any additional features, such as premium-free child cover or an advance for funeral expenses, this should also be explained in the PDS. If you have any questions about the PDS or what is included in your life cover, do not hesitate to ask your insurer or life insurance specialist.
Your life insurance premium is the price you pay for your life cover. You may have the option of paying monthly premiums or annual upfront premiums, as well as choosing between stepped and level premiums. Be aware of the consequences of lapsed payments, as it could mean an automatic cancellation of your policy.
Besides knowing how much your premiums are, you should also ask the following questions:
A good life insurance policy is flexible, meaning you can change your level of cover as your needs change. For example, you should reassess your life cover whenever you experience a major event, such as buying a house, changing jobs, or having children. If you want to upgrade to a higher cover amount or add more features to your policy, ask your insurer how this would be possible.
It is also wise to be aware of the answers to the following:
Your policy start date is not necessarily the same date you purchased the policy. Check to find out the exact date your policy starts, and whether or not you are covered for all inclusions from that date.
Income protection life insurance policies often include waiting periods, which is a period of time after experiencing an illness or injury before you can make a claim.
Employers who offer a default superannuation fund are required to offer life insurance through the fund. While you are not required to maintain this life cover, it is worth considering. Life insurance through super allows you to pay your premiums using pre-tax funds, freeing up your day-to-day cash flow.
On the other hand, these payments reduce your super balance, and the life cover through super can sometimes be more restricted than those out of super. Don't assume that your life cover in super is sufficient; do your research and know what you're covered for.
When it comes to term life insurance, you won't be the one making the claim. However, there are steps you can take to make the process easier for your beneficiary or beneficiaries.
Don't be afraid to ask any questions you have about life insurance. The more you know, the better equipped you are to compare policies and buy with confidence.COMPARE & SAVE
This guide is of an informative nature only and not representative of Compare Club products. It should not be taken as medical or financial advice. Check with a financial professional before making any decisions.