Why the Need for Life Insurance

The need for Life Insurance comes down to one thing, financial security. No matter what age or gender you are your household requires money (or income) to acquire assets, live life's goals and pay off debt. It is a journey you often share with friends and loved ones.

Life has the habit of throwing a curve ball from time to time. We often deal with these challenges as part of life. It can also be filled with tragedy like the loss of a family provider or loved one. Unfortunately the world around us keeps turning and our bills keep coming. Dreams may sometimes be threatened not only by the loss of someone close to you but also by the financial burden it creates. This adjustment, not only emotionally, can be quite significant and affects all members of the family unit. In these situations life insurance is invaluable, providing the financial stability while life is re-adjusted.

Don Trapnell from Synchron discusses this emotional and financial challenge in his video. It is a pragmatic approach to preparing for the unknown.

Life cover pays out an agreed lump sum on the life insured if that person suffers a terminal illness or passes away during the term of the life insurance policy. If you haven't already considered the implications of such an impact to your life then speak with a personal risk adviser. They specialise in personal risk analysis and can explain the options and help find the right policy and pricing to meet your needs.

It is never too late or too early to plan for the impact of life's risks.

About the Author: Mary Kendall writes for MultiCover, specialising in personal risk insurance. Her goal is to provide consumers with a better understanding of life, disability, income, trauma and other personal risk insurance. MultiCover Life Insurance Australia - Insure Your Peace of Mind.

What Level Of Life Insurance Cover Should I Have?

All good personal risk advisers will have a rigorous process they follow to ensure that any recommendation made takes into account what you would want or need for yourself or your dependents in the case of your death. Their aim is to provide a personal risk management strategy that supports your family's lifestyle and financial plan on an ongoing basis. As such there is no set formula that quantifies the sum of insurance you require.

As part of the fact-finding process used by an adviser when interviewing you there are a number of financial questions that are asked. The response to these questions combined with a personal needs analysis will enable the adviser to formulate their recommendation.

When considering term life insurance there are a number of simple questions that you can ask yourself which will help to provide an indication of the likely amount of cover required. This should not be used other than as a guide and to help prepare for a discussion with an adviser. Simply place an estimated after tax value against each entry in the list below.

Immediate Needs

• What is the value of your personal and business debt (including mortgage)?
• What is the value of replacing ageing assets such as your car?
• What is the value of your children's future education?
• What is the value of one month's salary (emergency fund)?
• What would you like to provide for funeral costs?
• What is the value of paying out any other items or assets not already covered?
• What is the value associated with future life goals (overseas trips, holiday house, etc.)
• TOTAL this section (A)

Ongoing Needs

This section is calculated by converting annual income to a capital sum by dividing it by an assumed earning rate of 5%. This lump sum then funds the income requirements through earnings.

• What is the value of your annualised after tax income divided by 5%?
• TOTAL this section (B)

Current Assets

• What is the value of your investments (excluding mortgage)?
• What is the value of your current term life insurance cover?
• What is the value of your other assets not covered in earlier sections?
• TOTAL this section (C)

Your likely cover requirements are then (A) + (B) - (C).

As a check this value should be at least 10 times your average annual salary, perhaps a lot higher. This is very much a 'status quo' situation and indicative of what you may provide for your beneficiaries to maintain their lifestyle. You should also consider the same process for your spouse or partner so that they provide for your future should they pass away unexpectedly.

This is a very generalised approach and does not take into account your particular insurance objectives, broader financial situation and needs. Your next step should be to speak with a qualified insurance adviser who will help you determine what insurance cover is right for you and your family.

About the Author: Mary Kendall writes for MultiCover, specialising in personal risk insurance. Her goal is to provide consumers with a better understanding of life insurance, disability insurance, income protection, trauma insurance and other personal risk insurance. MultiCover Life Insurance Australia - Insure Your Peace of Mind. For a customised personalised risk management strategy that matches your needs. Minimize the financial risk associated with a life hazard event (injury, illness, permanent disability, medical traumas and death) and provide peace of mind.

When to Take Out Income Protection, TPD and Trauma Insurance

Other than death cover there are three major types of personal insurance cover that you can purchase to manage the risks associated with injury, illness, permanent disability and medical emergencies. Each has an important part to play in a personalised risk management strategy.

• Income Protection insurance provides you with a regular income for the period you are unable to work due to serious illness or injury.
  
• Total and Permanent Disability (TPD) insurance which provides you with a lump sum payment aimed at providing you with ongoing financial support as a result of a total or permanent disablement.
  
• Trauma insurance which provides you with a lump sum payment aimed at supporting you financially as a result of being diagnosed with a qualifying illness.

Income Protection Insurance provides you with a regular income stream should you suffer an illness or injury and be unable to work. Your insurance policy will likely pay a monthly amount of up to 75% of your gross salary for an agreed period or until you are well and able to return to work. It is offered with both a benefit period (the maximum period of payment) and a qualifying period (how long you wait for the first payment).

It is important to note that Income Protection and Workers Compensation are quite different. Workers Compensation covers the costs where the injury was suffered at work. Income Protection provides you with a regular income stream for an injury or illnesses that are unrelated to your work.

Keep in mind that not all income protection policies are the same. The varying benefits, features, options and even definitions affect the costs dramatically. The combination of personal information, your agreed benefit period and agreed qualifying period will also affect the cost of income protection cover. As a guide, income protection can cost around one week's salary per year (and can be tax deductable in qualifying countries).

Total and Permanent Disability (TPD) Insurance provides you with an agreed lump sum in the event that you become totally or permanently disabled during the term of the TPD insurance policy.

A disablement that prevents you from earning a regular or replacement income can place a huge financial burden on your family and lifestyle. The additional costs associated with adjusting and managing the disablement adds to this financial stress.

Remember that your TPD insurance needs will vary over time and should be reviewed at least annually.

Trauma Insurance or Crisis Recovery Insurance pays you an agreed lump sum if you are diagnosed with one or more serious medical illnesses. The policy will specify the illnesses that are covered and may differ from one policy to the next. Although most Trauma insurance policies pay immediately on an accidental trauma, it is important to note that generally a Trauma insurance policy has a qualifying period, normally 90 days.

Unlike Income insurance, Trauma insurance will only be paid on the diagnosis of a qualifying illness. Consider a specified illness (e.g. cancer) where you are diagnosed but are able to work. In this case you may not be eligible for Income insurance but you would receive a lump sum through Trauma insurance. However, if you are not working then Trauma insurance would be the only option available.

There are a number of qualifying requirements and options available when it comes to Trauma insurance. Generally pre-existing conditions are excluded from the specified illnesses. Options can include the possibility of structuring a policy such that it minimises the risk for multiple lifetime medical illnesses or alternatively the policy can be in place as a once off event.

Remember that term life insurance only addresses terminal illness and death. Thankfully many of life's hazards do not result in such dire outcomes. Injury, illness, permanent disability and medical emergencies are other potential outcomes that need to be considered carefully.

Recent research showed that 70% of a workforce is likely to suffer from a long-term medical condition as a result of sickness and accident, which lasts six months of more. How would you cope financially if this happened to you? Make a short list of the financial impacts and then complete a financial Risk Assessment for you and your family. This may highlight some concerns and reasons for having the right cover in place.

The field of personal risk insurance can be confusing and therefore worth speaking with a qualified personal risk adviser before making a decision.

About the Author: Mary Kendall writes for MultiCover, specialising in personal risk insurance. Her goal is to provide consumers with a better understanding of life insurance, disability insurance, income protection, trauma insurance and other personal risk insurance. MultiCover Life Insurance Australia - Insure Your Peace of Mind. For a customised personalised risk management strategy that matches your needs. Minimize the financial risk associated with a life hazard event (injury, illness, permanent disability, medical traumas and death) and provide peace of mind.

How Much Life Insurance Do I Need?

Everyone is different and therefore no 'one answer fits all' response can be provided. Consideration needs be given to your family's financial position which takes into account personal assets, income, debt, expenses and life goals. However as a generalisation most personal risk advisers will recommend that you have life cover equivalent to a minimum of 10 times your average annual income. Life insurance must be tailored to your need and the level you require may be higher.

There are a number of free online tools that can help you work through this question based on your family's financial position. For the purpose of illustrating how individualised the needs are I will refer you to free no obligation Insurance Risk Calculator (see the bottom of this article) that I am familiar with or you can Google 'Insurance Risk Calculator' to find one you prefer. The output from the calculator will form part of a personal needs analysis and guide us through a process of considering how much life insurance you need.

An important thing to remember when addressing the 'how much' question is that there are different types of life insurance. There is cover for death, disability, loss of income and a medical trauma. So the amount of cover you need is dependent upon not only your financial situation but under what circumstances you require cover and how important that is to you. This should be quite evident from the personalised results you obtained from the calculator. Some situations will require your focus more so than others.

If you or your partner were permanently disabled or died prematurely you need to consider the costs associated with:

• Paying out the mortgage or remaining debts
• Continuing the children's education
• Ensuring funds are available to replace any loss of family income
• Keeping the family business running
• Covering any medical of funeral costs
• Meeting ongoing medical needs
• Modifying your home
• Supporting the ongoing household expenses
• Maintaining your assets & investments
• Continuing to save for the future and still achieve your life goals.

This is where a lump sum payment through a Term Life Insurance policy and/or a Total and Permanent Disability (TPD) Insurance policy would assist.

If you or your partner became sick or were injured and couldn't work you need to consider the costs associated with:

• Paying your mortgage or weekly rent
• Supporting the ongoing household expenses
• Providing for ongoing children's education and costs
• Maintaining your assets & investments
• Covering additional medical costs as a result of the injury or illness
• Continuing to save for the future and still achieve your life goals

This is where a regular income stream through an Income Protection policy would assist.

If you or your partner suffers a major medical illness (heart attack, cancer, etc) you need to consider the costs associated with:

• Covering any medical associated with crisis recover
• Funding a change of lifestyle
• Paying out the mortgage or remaining debts
• Continuing the children's education
• Ensuring funds are available to replace any loss of family income
• Helping the family members achieve their life goals

This is where a lump sum payment through a Trauma Insurance policy or Crisis Recovery policy would assist.

It is important to note from the examples above that it is a combination of the various types of personal risk insurance that provide the best protection.

Based on your situation, either as a result of the calculator or through having a broader understanding of the impacts, you now know that the cover you require must be tailored to your situation. Many people fall into the trap of purchasing term life insurance without considering their needs and the impact of life's hazards (injury, illness, permanent disability, medical traumas and death). The solution should be customised to provide a personalised risk management strategy that matches your needs. A good personal risk adviser can do this for you and usually within your budget.

Therefore the amount of life insurance cover you need really is a very personal question.

Reference Calculator: Insurance Risk Calculator  (this is a free online tool that maintains your anonymity but provides a thought provoking analysis).

About the Author: Mary Kendall writes for MultiCover, specialising in personal risk insurance. Her goal is to provide consumers with a better understanding of life insurance, disability insurance, income insurance, trauma insurance and other personal risk insurance. MultiCover Life Insurance Australia - Insure Your Peace of Mind. For a customised personalised risk management strategy that matches your needs. Minimize the financial risk associated with a life hazard event (injury, illness, permanent disability, medical traumas and death) and provide peace of mind. Mary Kendall

Life Insurance and Your Mortality

They say that nothing in life is certain. Well one thing certainly is; your mortality. It's just a matter of how mortal you are. At least that is how life insurance companies try to look at it. Ever wondered how mortality is measured and how that may affect your insurance premium?

When you apply for a life insurance policy you will complete a questionnaire. This will provide the insurance underwriter with personal information such as your past, current and genetic health situation. Based on this information they may request additional medical examinations in order to better understand your situation. This helps them determine whether it is a health factor they should consider or treat as irrelevant during their assessment of your application.

Life insurance companies have a system for rating you and your mortality. This is largely based on statistical mortality rates used by insurance underwriters. Simply put this is a system of classifying people into mortality groups using a 'numerical rating system'. Each health factor considered affects mortality, either positively or negatively. If you look at this as a credit or debit system then the process is a little easier to understand.

Assume that every health factor is assigned a value. The combination of these individual scores then creates a 'risk score card' for the applicant. The higher the score, the higher the risk and most likely the higher the cost to you.

Let's assume the standard mortality group is represented by 100 points and is assumed to represent all of the manageable or expected health challenges faced by the average person. This is then offset by debits for unfavourable factors such as impairment and credits for favourable factors. For example, assume an applicant has high blood pressure but a normal ECG then the score card may look something like this:

(High Blood Pressure 200pts) - (Normal ECG 50pts) = (Extra Mortality 150pts)
The mortality score for this person has gone up from the standard 100 points by 150 points to 250 points and therefore a new mortality grouping. Not great, but it would have been worse if that person didn't have a good ECG.

Under certain circumstances the extra mortality of two impairments could be greater than the sum of the two. The interrelationship between the impairments could cause a further increase in the mortality rating. For example, assume an applicant has high blood pressure and is overweight then the score card may look something like this:
(High Blood Pressure 200pts) + (Overweight 25pts) + (Combination 50pts) = (275 Extra Mortality points)

The mortality score for this person has gone up from the standard 100 points by 275 points to 375 points and therefore a new mortality grouping.

The insurance underwriter then uses the score to determine the risk associated with the application. This risk is then used by the actuary to calculate an appropriate premium for the applicant. Therefore a person's medical condition and the mortality score have great relevance to the life insurance policy.
All of my examples have been created to help explain how the process works. Everyone is different. If you want to understand it in context of your situation you must speak with a qualified insurance adviser.

Everyone has different drivers and levels of risk, and this Risk Calculator can be used to help you confirm yours and understand where mortality plays its part. About the Author: Mary Kendall writes for MultiCover, specialising in personal risk insurance. Her goal is to provide consumers with a better understanding of personal risk insurance. MultiCover Life Insurance Australia - Insure Your Peace of Mind.  For a customised personalised risk management strategy that matches your needs. Minimize the financial risk associated with a life hazard event (injury, illness, permanent disability, medical traumas and death) and provide peace of mind.

How Being a Smoker Affects the Cost of Life Insurance

When you apply for a Life Insurance policy there are a number of health related questions that are asked. One of those is whether you are a smoker or a non-smoker. On that point alone insurance companies will charge a higher premium if you are a smoker. This is because a smoker has a statistically higher mortality rate (see my article: Life Insurance and Your Mortality) than a non-smoker.

Each insurer will define how you qualify as a non-smoker and by default if you don't qualify you would be considered a smoker. An example of non-smoking qualification may be that you have not smoked in the past 12 months and have no intentions of smoking tobacco or any other substance in the future. Policies differ, so if you want to understand this in context of your situation you must speak with a qualified insurance adviser.

A study conducted by the American Cancer society found that the average smoker has about a 1 in 6 chance (16%) of developing lung cancer in their lifetime. The average non-smoker on the other hand has less than a 1% chance of developing lung cancer in their lifetime. It also found that smoking is responsible for an increased risk of cardiovascular diseases and other lung diseases such as pneumonia and bronchitis.

Simply put, if you have a statistically increased chance of being disabled or dying from any disease a life insurance company will charge you a higher premium. If the act of smoking increases the probability of suffering a disease more so than a non-smoker then there is an additional cost. Smoking may cost you an additional 30% to 50% on the premium of a non-smoker. The insurer does this to ensure they have the pooled funds necessary to offset future claims and not penalise non-smokers.

To help you evaluate the financial risks associated with a smoking related disease you can use this Financial Risk Calculator tool. The message here is that in being or becoming a non-smoker you will save money on your life insurance premiums.

About the Author: Mary Kendall writes for MultiCover, specialising in personal risk insurance. Her goal is to provide consumers with a better understanding of personal risk insurance. MultiCover Life Insurance Australia - Insure Your Peace of Mind. For a customised personalised risk management strategy that matches your needs. Minimize the financial risk associated with a life hazard event (injury, illness, permanent disability, medical traumas and death) and provide peace of mind. MultiCover Life Insurance Australia - Insure for Peace of Mind

Life Insurance Beneficiaries - The Beneficiaries You Choose Are As Critical As the Policy You Select

Life Insurance is a very important part of your financial risk management strategy. As a financial provider to your loved ones, it helps you to have peace of mind that your family's financial needs will be addressed if the worst was to happen to you.

When you arrange life insurance, you should first decide who the beneficiaries would be should the worst situation occur and you die. Unfortunately, after your death you have no control over how the benefits of your life insurance policy are distributed to your loved ones. It is sad but true that not everyone is going to want to respect your wishes after you die. It is therefore critical that you choose your beneficiaries carefully. In the same way that you do when you write your Will.

It is important to clearly specify who your beneficiaries will be. If for example you designate your estate as the beneficiary, the benefits will be paid to the estate, and may be subject to your estate's creditors. If you designate your spouse as the beneficiary, an ex-wife may file a claim. If you specify the beneficiary as "children of the marriage", any children you have adopted, or your partner's children from another marriage might get excluded. It is critical that you be specific about who the benefits are meant to be distributed to. Do not leave this critical component of the life insurance policy to chance.

Throughout your life your situation will change. In the early years, you may have young children that need a lot of financial support. They will have education, clothing, and living expense needs as they grow up. As you get older, your children may move onto higher education, and need some assistance as they make the transition from child to adult. For example, they may need assistance buying their first car, buying a house, getting married, etc. It is common place for parents to assist their children as they make this transition. What if you were not alive and able to help? In the later years, you and your partner will need to support each other and prepare for retirement. Do you both have enough money for the later years? You may choose to make investments that have significant financial commitments. For example, you may choose to buy investment properties, or shares, you may take out loans to help facilitate these investments. What if one of you was to die and the other could not maintain these financial responsibilities?

Because your situation will change over time, it is important that the beneficiaries you list in your life insurance policy are the ones that will need your financial assistance after you have died. Review your life insurance beneficiaries from time to time and ensure that the list reflects best those that depend on you for financial support.

You should also establish contingent beneficiaries. It may be possible that the primary beneficiaries die before you or die at the same time. The contingent beneficiary option is there for this situation.

The choice of a beneficiary is a very personal thing. No two people view the world the same way, or have the same financial situation. Each person will see the threats to financial security for the loved ones differently. They will have different opinions of what financial risk management really means. When you are ready to setup a life insurance policy to financially protect your loved ones, first discuss the risks and needs with your family. Another great tool available to you is a Financial Risk Calculator. The Financial Risk Calculator will help you to identify what the key risks are that you face. You can then use this information to talk to a Life Insurance adviser about how best to manage the risks that you face. When you talk to the life insurance adviser make sure that you clearly list the beneficiaries you want included on your policy.

MultiCover Life Insurance Australia Insure Your Peace of Mind Under the guidance of a qualified personal risk adviser MultiCover brings together the benefits of multiple personal risk insurance products. These are then customised to provide a personalised risk management strategy that matches your needs. The aim being to minimise the financial risk associated with a life hazard event (injury, illness, permanent disability, medical traumas and death) and provide peace of mind.