Death is inevitable for each of us, and while most generally don’t like thinking about it, it’s best to be prepared in case of unexpected, tragic events. If you want to ensure your loved ones are financially protected in case of your unexpected death, you’ll need to have a life insurance policy. The most common type of life insurance policy is the basic life cover, which pays out a lump sum in the event of your death. This is known as a death benefit. There are other kinds of coverage options including TPD (total and permanent disability) coverage that pays out to assist with rehabilitation and living costs in case of an event that leaves you disabled.
Life insurance policies require that your premiums be up to date in order for them to payout, and they’re generally effective for an agreed-upon amount of time. It’s possible to renew coverage past this date, though some policies may require a medical exam in advance. It’s easiest to obtain life insurance when you’re younger since you’re considered low-risk, but you can obtain coverage at any point in life, albeit with higher premiums. Premiums generally increase each year, as you become a higher risk as you age. Life insurance won’t make much sense for those who are financially sound and have no dependents, but if you’re supporting a family or have outstanding debts, it’s a good idea to have coverage.
Types of Life Insurance
Life insurance policies are divided into two basic categories: Whole life and term life.
Whole life insurance: Also known as permanent life insurance, this type of policy offers protection throughout the insured’s entire lifetime. In addition to the basic death benefit, this type of insurance also accrues a cash value over the term of the insurance that can be sold or borrowed from if you have the need for it. You can choose between a few different types of whole life insurance that will give you varying rates on your cash value, and you’ll have the advantage of keeping the same premium.
Term life insurance: Also called pure life insurance, term life policies guarantee a death benefit over a specified period of time. Once the time is up, policyholders can renew, upgrade to a permanent policy, or terminate the policy. Term coverage offers the advantage of being low-cost, but it lacks any sort of cash value. Still, these policies can be great for those who only need temporary financial protection.
Reasons to Increase Life Insurance
Increasing a policy will always entail higher premiums, and possibly additional complications, but there are many situations where doing so is worthwhile.
Your family has expanded: If you’re recently gotten married or had children, it’s a good idea to take a close look at your policy and recalculate its value. The more people who depend on you, the more likely you’ll need increased coverage.
Health status has changed: If your own health, or the health of a loved one, has taken a turn for the worse, you may want to change your policy. If your own need for life insurance has increased, you may wish to upgrade to a permanent policy or at least find a policy that won’t require a medical exam to renew. You may also want to increase coverage to help aging or ill family members to ensure they’ll be taken care of in the event of your sudden death.
A term policy is expiring: While you can always renew a term policy when it reaches its expiration date, you can always upgrade it to a whole life policy. Even if you don’t currently need the coverage, it can still be useful to build cash value. You never know when you may need some extra money, and your life insurance policy may turn out to be a great, unexpected source.
Explore life insurance options with iSelect. Get a life insurance quote for a plan that meets your current and planned future needs.