Life insurance is a common asset that factors into many people’s long-term financial plans. Life insurance is a way to protect your loved ones, providing them with the financial support they may need after you die. However, many people are not aware that there are circumstances in which you can access your life insurance before death.
Life insurance and superannuation
Super funds typically offer three varieties of life insurance for their members:
- life cover — also called death cover, which endows a lump sum or income stream to your beneficiaries when you die or have a terminal illness.
- TPD insurance — pays a benefit if you become severely disabled and are unable to work again.
- Income protection insurance — also known as salary continuance cover, pays you a regular income for a specified period. If you are unable to work due to temporary illness or disability.
Most superannuation funds will automatically include life cover and TPD insurance. Some funds will also automatically provide income protection insurance, for a specified amount and without medical checks.
TPD insurance cover in superannuation usually ends at age 65. Life cover usually ends at age 70. Outside of super, cover generally continues if you pay the premiums.
What to check before you buy life insurance
Before you buy life insurance, by law an insurer must give you a product disclosure statement (PDS). Check the PDS for:
- what’s covered and what’s excluded under the policy
- what information you’ll need to give an insurer
- information on premiums and how they change over time
- waiting periods before you make a claim
- how to make a claim
- how to complain about the claims process or decision
Also check whether you already have life insurance through your super. Make sure you’re not paying for insurance twice.
How to buy life cover
Check if you already hold life insurance through super. Most super funds offer default life cover that’s cheaper than buying it directly. You can increase your level of cover through your super fund if you need to.
You can also buy life cover from:
- a financial adviser
- an insurance broker
- an insurance company
Life cover can be bought on its own or packaged with trauma, TPD or income protection insurance. If it’s packaged, your life cover may be reduced by any amount paid on other claims in the package. Check the PDS or ask your insurer.
Compare life cover
Once you know how much life cover you need, shop around and compare:
- benefits and policy features
- waiting periods before you can claim
- limits on cover
- the cost of the premiums — now and in the future
A cheaper policy may have more exclusions, or it may become more expensive in the future. You can find information about the policy on the insurer’s website or in the PDS.
Someone suffering from a terminal illness could benefit from having their life insurance paid out early.
It isn’t commonly known that if someone is suffering from a terminal illness, they may be able to access their life/death insurance early. These funds can help support the family whilst caring for the terminally ill person, assist the patient with access to an expensive or alternative treatment or enjoy the days they have left.
If someone has a terminal illness with a poor prognosis, they can apply to their insurer to have their life/death cover insurance paid out early. Most insurers classify terminal illness as a condition with a prognosis of fewer than 24 months. Some insurers require fewer than 12 months; however, we see more funds accepting a 24-month prognosis.
The claim turn-around time for terminal illness claims is generally weeks compared to months for total and permanent disablement claims, meaning the patient can access funds quickly to spend how they see fit.
When dealing with these matters, it’s best to claim as soon as possible. Some super funds have binding nominations, which means the account holder can nominate someone directly.
If there is no nominee or a non-binding nomination, the person managing the super fund (the trustee) may decide who the dependents are, divide the super or give it to the deceased estate.
For terminal illness, the claim timeframes are like TPD claims. Obtaining professional legal advice as early as possible following an injury or illness is the best way to ensure your claim is successful.
At minimum two registered medical practitioners, one of which is a specialist in that medical field must have concluded that you are terminally ill or injured with less than 24 months to live. The certification period must also be current and not expired.
What can you do to help?
If you have a poor prognosis, you may wish to speak with your life insurer and superannuation fund to ascertain if they have life or death cover.
Engage a legal firm that can assist from initial enquiry to payment of the claim, liaise with the insurer directly, arrange the completion of any medical reports and lodge the claim on behalf of the individual. Therefore, you can play a very minimal role in the claim to reduce any unnecessary stress.
Vogue Advisory Group – helping you decide what is best for you
If you need help deciding if you need life cover, and how much, speak to a financial adviser.