Specific questions re: life insurance and income protection.

603304529

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Hi.

I'm a 28 year old Aussie male. Very healthy. Non smoker.

Married to a 29 year old Irish girl. Very healthy. Non smoker.

We have a baby girl.

We are renting - so no mortgage commitments.

I am the sole bread winner. Earning 50k. Permanent job: though still in "probationary period", have been assured of long term employment.

I want to have some sort of life insurance, and income protection: if I am injured/diagnosed ill/killed/lose my job, my wife (and I if I am alive) should be comfortable financially.

Have been looking at these life insurance policies online, and have a few q's.


  • Am I looking for a combined policy, or two separate ones (income protection and life)?
  • I'm thinking I am really only looking to insure myself. She already has a small life insurance policy. And quite frankly, if she's gone, an insurance payout will be the least of my concerns. I can always support myself and child.
  • Would a 500k policy be a good ballpark figure to insure for life insurance? I realise thats a "how long is a piece of string" q. But like, in 30 years time, 500k is going to be worth diddly squat anyway isn't it? Which leads into my next q:
  • What are the implications/things to consider, when weighing up say a 10 year term vs a 30 year term? Is it just that if I was to take out another 10 year policy in 10 years, it would/could cost more than the 20 year one would cost now?
  • Does best practice dictate that I should be insuring for 30 or 35 years, ie, till I retire?
  • Do I have to watch out for increasing premiums, or if I am quoted x per month, does that mean x per month for the next 30 years?
  • What is the go with being able to "draw down" an amount if I cancel a policy? I'm not really interested in being able to get money back, if its going to cost me more now - we are quite capable of saving sufficiently.
  • If we go to live in Aus, and I die over there, will an income protection plan, and/or life insurance policy be any good to us?

So many questions, sorry. I have been trawling the forums for answers, but haven't found anything that meets my requirements specifically. If you reckon I'd be better off talking to someone, rather than posting all the dumb q's, just say so...

Ta.
 
I think a good rule of tumb for life cover is to multply your net take home pay (which will cease in the event of death) by 15-20 and take it out over a 25 year term (25 years your daughter should be self sufficent). If you have a conversion option on the policy you can extend it past the 25 years without any medical evidence. You will be charge a premium based on your age at that point in time but at least it will give you the option to extend. To combat inflation you can opt for a indexation option which will increase the cover but also will increase the premium. You will have the option to decline the indexation if you need to on a yearly basis.

The cost of a policy where you can draw down a value is quite high, these are called unit-linked policies where part of the premium goes into savings and the balance is used to maintain the life cover....also the premiums are reviewed and will be increased through the policy which is usually whole of life.

There is no territorial limits on death benefit so once you continue to pay the premium you will be covered.

Hope this helps
 
Some good advice there from Sambuca, here's my two cents:


  • Am I looking for a combined policy, or two separate ones (income protection and life)?An income protection policy is separate to life cover,
  • I'm thinking I am really only looking to insure myself. She already has a small life insurance policy. And quite frankly, if she's gone, an insurance payout will be the least of my concerns. I can always support myself and child. Don't underestimate cover needed for your partner, life cover can be obtained on a joint basis relatively inexpensively and maybe a reduced amount of serious illness cover - its a bit morbid but if anything did happen to her think of child care costs etc.
  • Would a 500k policy be a good ballpark figure to insure for life insurance? I realise thats a "how long is a piece of string" q. But like, in 30 years time, 500k is going to be worth diddly squat anyway isn't it? Which leads into my next q: A qualified financial adviser (QFA) will be able to calculate how much cover you need
  • What are the implications/things to consider, when weighing up say a 10 year term vs a 30 year term? Is it just that if I was to take out another 10 year policy in 10 years, it would/could cost more than the 20 year one would cost now? Generally a longer term policy will be more expensive but delay when the policy will be reviewed. Most policies offer guaranteed premiums.
  • Does best practice dictate that I should be insuring for 30 or 35 years, ie, till I retire? Again an adviser will help with this
  • Do I have to watch out for increasing premiums, or if I am quoted x per month, does that mean x per month for the next 30 years? The only time premiums should increase is after indexation or at the end of the term. Make sure you have a convertible option on your policy to make sure you can continue cover at the end of the term.
  • What is the go with being able to "draw down" an amount if I cancel a policy? I'm not really interested in being able to get money back, if its going to cost me more now - we are quite capable of saving sufficiently.A good rule of thumb is to keep a life policy and savings policy separate
  • If we go to live in Aus, and I die over there, will an income protection plan, and/or life insurance policy be any good to us? Life cover won't, the income protection policy will have geographical conditions.
Best of luck
 
Set out your goals and priorities first . .

If you died tomorrow whats the minimum cover you would like your family to receive . .

If you were unable to work due to an accident you may be entitled to a lump sum if you have critical Illness cover or you may be entitled to up to 75% of your salary if you have an income protection policy.

If your partner died tomorrow, would you want some time off work to grieve (I know its a harsh question but its a fair one). Would you at least be comforted somewhat with some sort of financial payout to ease future financial burdens . . (Its just something to consider).

The only form of redundancy cover I know of is Mortgage Income replacement. If you have any reason to believe that your job is in anyway threatened by current economic events, this policy is not for you . .

A good financial advisor can help you work out how much replacement income you would need (or your family would need) if you were to die, become critically Ill or unable to work.

For Example, As a very Minimum rule of thumb I always suggest having the house paid off so at least your family owns its home (although thats not relevant in your case). Then theres covering your other liabilities (personal loans, credit cards etc). Then theres the consideration of what sort of lifestyle your family has now to what sort of lifestyle they would like to have if something should happen to you.

One example of covering yourself but trying to pay a lower premium initially, is by taking out a Term Assurance conversion policy. Lets just say that you take out a 10 year convertible Term policy. At any stage during the term of the policy you can take out the same amount of cover again for a longer term irrespective of your medical condition. This is important as if you were diagnosed with an Illness during this term you would not necessarily get cover when the contract expires, the conversion option covers this possibility.

Obviously this has to tie in with your financial affordability and thats the reason why its important to discuss this with a financial advisor or broker (so you can cover yourself adequatley and within a budget).

Life Assurance, critical Illness and Income protection policys are not designed or sold to people who necessarily expect the worst. Like Car Insurance or House Insurance they are designed to give us peace of mind. The idea behind them is that you are covering your family in the event of the worst events, but hoping that your family never need to use these policies. Thats why its important that when you are taking out any of these policys you think about the ramifications these events will have on your family and its finances.
 
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