October 22, 2018

I'm young - do I need life insurance now?

Life insurance is usually not something people think about until they begin to accumulate assets, debts and dependants. And there can be a fair amount of information to sift through, including some little known and commonly misunderstood facts.

But you shouldn’t leave it too late in life to think about your cover. By ensuring you have appropriate cover when young and fit, you could save yourself some hassle, and quite possibly some money, when you’re older.

You probably already have life insurance

Did you know there’s a good chance you already have some life insurance cover, as more than 70% of Australian life insurance policies are held inside super?ⁱ But what do you need to know about this type of life insurance?

Understanding insurance within super

There are some benefits to having insurance within your super. It’s often cheaperⁱⁱ, because super funds purchase insurance policies in bulk. And if your premiums are deducted from your super, you won’t be dipping into your take-home pay.

Paying insurance premiums via your super, however, could decrease your super balance if your premium is not being offset by contributions. And if you make a claim, you may need to pay tax on the benefits paid to you.

It’s also important to recognise that the life cover provided by super funds is usually bought on a group basis, based on averages not individuals.ii If you – or your loved ones – need to claim on your policy you may find out you aren’t covered for everything you hoped you might be.

Understanding stand-alone life insurance

The other option is to buy a stand-alone policy from an insurance company.

While this type of cover usually comes out of your take-home pay, it’s tailored specifically to you and can be adjusted to reflect your changing circumstances – such as buying a home or having children – to ensure your insurance remains suitable to your needs.

And where does ‘underwriting’ fit in?

An important part of the process for obtaining this type of cover is called underwriting, which typically involves completing an application form, possibly followed up by a phone call, to collect personal details such as your age, gender, health and medical history, and lifestyle information.

Using this information, the insurance company can accurately assess your risk, and set your premiums to reflect this, so you should never pay more than you need to.

The benefits of buying life insurance early

By buying insurance when you’re young you’re less likely to have exclusions applied, or to be declined cover, than you might be when you’re older and your health has deteriorated. You’re also less likely to have to pay higher premiums to cover particular health issues.

And once you’ve taken out stand-alone life cover, it will automatically renew each year regardless of changes to your health, until you either choose to cancel it or reach the maximum age under your policy.

ⁱ http://ricewarner.com/insurance-through-superannuation

ⁱⁱ https://www.moneysmart.gov.au/superannuation-and-retirement/how-super-works/insurance-through-super

Important note: While every care has been taken in the preparation of this article, AH Financial Services makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs.

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