When should you buy and review your life insurance?

As we go through life and experience the different events that happen along the way – such as beginning a career, getting married, starting a family or buying a home – we expect that we’ll live to retirement and enjoy a ripe old age.

Unfortunately, not all of us will make it to this stage. Accidents and illnesses happen – and when they do, family members and loved ones who depend on us are often left behind with financial burdens and questions about what to do

Without an appropriate protection plan in place, your family may struggle to make ends meet and pay bills, both immediately and in the long-term.

With these unfortunate possibilities in mind, ask yourself: Do you have a plan in place for your loved ones?

A good life insurance policy is an important part of your overall financial plan. In the event of an accident, terminal illness or death, life insurance can lessen the financial impact on your loved ones by providing them with a lump-sum payment.

The money received from a policy may be used by your family to reduce or eliminate outstanding debts such as a mortgage, investments, loans or credit cards, or as a source of income for living expenses. Funds can also be used to cover things such as your children’s education or funeral costs or can be put into an estate plan for your beneficiaries.

The premiums payable for life insurance are based on the insured amount and the features of the policy, as well as other factors such as gender, age, occupation, hobbies, smoker status, current health and medical history (including family history).

Remember, too, that there are two main types of life insurance: ‘Term’ and ‘Whole life’. Term insurance provides a payment only if the bearer of the insurance dies during the term of the policy (usually between 1 – 30 years). Whole life insurance, on the other hand, pays benefits whenever you die, no matter what age. The type you choose will depend on your salary, the needs of your family and other factors, so be sure to discuss all the options with your adviser.

Taxes and super funds

In terms of the tax deduct-ability of insurance premium payments, this will often depend on the ownership structure – for instance, if the policy is held outside of your superannuation fund, the premiums are generally NOT tax-deductible, but payments from successful claims are generally tax-free.

If your policy is held inside of a superannuation fund, the premiums are generally tax deductible to the super fund, but the payments from a successful claim can be taxed if those payments are made to a non-dependent (eg. an adult child who is no longer considered as a dependent).

Keep in mind, too, the dynamics of your family situation. Your needs will be different if you’re single, married, have children or don’t have children, etc. You’ll also want to consider how a policy should differ if you own your  business.

Remember, as with any financial planning, a life insurance policy is not something you should ‘set and forget’. It’s vital to notify your financial adviser of any major changes in your circumstances such as an increase or decrease in debt or income levels or a life event such as marriage or divorce, death of a spouse, birth of a child, etc.

Seeking professional help

There are many choices when it comes to life insurance policies, and it’s important to consider insurance as part of your whole financial and retirement plan, which is why it’s important to seek professional advice. Your financial adviser can work with you to establish an appropriate policy that is in line with your financial situation, goals and objectives.

Contact us to learn more about life insurance options that meet your needs.

The information contained in this article is based on information believed to be accurate and reliable at the time of publication. To the extent permissible by law, neither we nor any of our related entities, employees, or directors gives any representation or warranty as to the reliability, accuracy or completeness of the information; or accepts any responsibility for any person acting, or refraining from acting, on the basis of information contained in this blog. This information is of a general nature only. It is not intended as personal advice and does not take into account the particular investment objectives, financial situation and needs of a particular investor. Before making an investment decision you should speak with your financial planner to assess whether the advice is appropriate to your particular investment objectives, financial situation and needs.

About the Author

Sam Facy
Sam was always good with numbers: he even won the inaugural accounting prize at school. Adelaide being Adelaide, his father knew someone, which meant a part-time accounting job at an early age.

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