Why Do I Need Life Insurance?

A recent study conducted by the Investment and Financial Services Association (IFSA) has found that around 60 % of all Australians are under-insured. Many people, in the event of an illness or accident resulting in death or permanent disability, may not even receive a large enough insurance payout to cover a year’s salary.

Another study by Rice Walker the Actuaries found that around 80% of Australians do not have enough cover to last for 5 years. In fact, for many parents with young children, their life insurance needs are in the range of about 10 to 13 times their taxable earnings. Part-time employees require even greater multiples of their earnings. In total, it is estimated that Australian parents with dependents are under-insured by around $1.37 billion.

A study conducted by the US Department of Housing & Urban Development in 2005 found that for every home lost by fire, 3 homes are lost by the death of a breadwinner, and 48 lost through permanent disablement. This is because the injured or bereaved parents cannot meet home loan repayments and the house is repossessed by the bank. Bankruptcy is also a possibility, a major negative effect on your family, which would already have suffered a major loss or trauma.

People may think that superannuation is enough, as most policies have death and permanent disability benefits. But studies conducted by Rice Walker the Actuaries estimates the average payout from superannuation to be around only $70,000. This is well below the $500,000 - $600,000 needed by families with young children to maintain their current lifestyle, and to meet the needs of their children’s education. Therefore separate, adequate life insurance is essential for people with dependent children.

Having decided to take life insurance, you need to know what level of cover to take out. You will need to examine your family’s financial circumstances. Obviously you will need to take into account the number and ages of your children. You will also need to look at whether the remaining parent can work, and if you will need child care, which can be expensive – it can negate the positive financial effect of working. Your income and debts must be considered, as well as funeral expenses, mortgage payments, medical bills and university fees.

To be adequately covered you will probably need to be covered for at least 10 times your annual income. You should sit down with an insurance broker or financial advisor to look at a range of companies and insurance options to meet your family’s needs. A life insurance policy may include a savings or pension component to help you plan for your retirement, and should have personal liability insurance in case a visitor is injured on your property.

You may like to consider ING Life Insurance, which provides a policy with generous lump sum payments, a joint policy discount, competitive premiums and other benefits. For more information, go to http://www.creditworld.com.au/ing-life-insurance.html.

Summary

• Around 4400 parents with dependant children die each year in Australia.
• Many families are under-insured.
• You need a life insurance policy to meet your family’s needs. Superannuation alone is not adequate.
• You should seek financial advice regarding your life insurance needs.
• In the event of death or permanent disablement of the main breadwinner you could lose your or home or become bankrupt.

Article correct at its author date: Dec 2006. Copyright Virtual Office Space, Any unauthorised reproduction of this article will be prosecuted to the full extent of the law. Credit Cards Australia.

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