Let’s face it, insurance is a grudge purchase. There are about a million other things that you would rather spend your money on, right like brunch, booze, holidays, investments? You might be thinking, if I don’t have a mortgage or mouths to feed, why is it so important to take out life insurance or income protection?
Taking out a home loan or starting a family are often triggers for women to start thinking about life insurance, but the truth is from the moment you join the work force, your ability to earn an income is your most valuable asset. You may not be earning millions now but your ability to work and make money is your key to reaching your financial goals later in life.
Life insurance and income protection policies are a great way to provide financial certainty when your physically vulnerable.
Anything can happen, so it’s best to cover off all possibilities. The good news is that life insurance companies see young people as a relatively low risk. If you’re young and healthy, premiums are cheap.
Tip No. 1: Savvy spenders can lock down a policy when they are young and the premiums are cheap, that stay the same each year until you’re 60. This is called a level premium. It’s a bit more up front but much better in the long run.
Typically, you can insure yourself against death, and illnesses or injuries that are short term, long term, critical or terminal.
Critical illness cover pays out a lump sum if you’re diagnosed with one of the life-threatening conditions listed on the policy, such as heart attacks, cancer and stroke.
Tip No 2: A standard policy will cover off the big ones but it’s worth paying a little extra for a Plus policy that covers off a much broader range of illnesses.
For less threatening medical events an income protection policy will cover up to 75% of your usual salary. You can elect a short or a longer waiting period and different benefit periods. This will determine the cost of the premiums. Play around with the options until you find an affordable balance.
Tip No. 3: there are lots of different add-ons that you can attach to your policy for an additional cost. There’s value in adding the option that indexes your claim payments each year in line with inflation. If you’re on claim for a long time this can make a huge difference.
Finally, death and total and permanent disability cover will pay a lump sum. In death, your beneficiary will receive the sum insured. If you are totally and permanently disabled the lump sum can be put towards the cost of ongoing medical expenses or paying off debts.
Tip No. 4: Firstly, check to see if you have insurance through your employer. If you do have something in place, check who is paying the premiums and how much they are. Get to know this insurance well and ask yourself is it the right amount of cover for what you need.
Life insurance is an industry riddled with jargon and it’s hard to read a product document without falling asleep, so it’s a good idea to chat to an adviser who can steer you in the right direction.
Tip No. 5: If you do speak to an adviser make sure they have a lot of experience, can help you understand the policies you are putting in place and why, and that they will review your cover each your to ensure it is still in line with your needs.