When you’re considering how much life insurance you should have it can be easy to think that you don’t want the extra expense of paying out now for something that seems as though it’s such a long way off. This is especially the case when many people have superannuation funds which include insurance coverage.
The problem is that these funds do not provide sufficient cover for the majority of people. You need to make sure that your life insurance covers the costs that you need it to. There are 4 main types of personal insurance and you need to think about what coverage you need from each.
What types of life insurance are there and what do you need to consider with each?
The various types of life insurance exist to protect you in different circumstances; you need to think carefully about what your requirements are in each circumstance. You can learn more about each of the below at HBF.
Term life insurance
This type of life insurance is intended to provide for those you leave behind when you die. It’s vital that you’re realistic when calculating how much term life insurance you need. It may be tempting to cut out the payment of premiums in favour of other items you need but do you really want to leave your family in a precarious financial position when you’re no longer here?
When looking at what your insured amount should be you need to think about concerns such as:
- Paying off a mortgage
- School fees
- Clearance of debt
Your family is going to need enough money to survive without you and the income you bring into the home.
Total and Permanent Disablement (TPD) insurance
You may be completely healthy and capable of working today, but no-one knows what tomorrow may bring. TPD insurance provides for you and your family should you sustain an injury or illness that prevents you from working. Don’t underestimate the amount you will need, you should consider:
- Loss of your whole income
- Payment of mortgage and other debts
- Ongoing provision for your family
TPD insurance can be purchased by itself or as an add-on to term life insurance; it can cover either just your own usual profession or all occupations.
Trauma Insurance
This insurance is intended to help both you and your family if you develop a serious illness such as cancer or heart problems; it’s often referred to as living insurance. You need to think about how much coverage you will need to cover the financial implications of such an event.
- Keeping up with regular debt payments
- Payment for changes to your home as a result of your illness
- Payment for medical care
If you don’t have this insurance you stand the chance of falling behind financially if you struggle to work after becoming ill. You would not be able to benefit from TPD insurance if you were technically still capable of working. Trauma insurance can be purchased separately or as an addition to term life insurance.
Income Protection insurance
The difference with this type of insurance is that it’s paid as a regular income and not as a lump sum. It’s intended to allow you to comply with your financial responsibilities should you become too ill to work. You need to think about:
- How long your employers sick pay (or savings if you’re self-employed) would last
- What expenses you would need to continue to pay even if you couldn’t work
- Whether you need cover for business expenses if you’re self-employed
If you’re ill the last thing you want is worry about finances; income protection insurance can help alleviate this.
What quantity of life insurance coverage is adequate for you?
