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Life insurance is an important investment, but different types of coverage can deliver even better value at different points in your life.
Many of us put off thinking about life insurance until we’ve achieved a particular milestone like having kids or buying a house.
But – much like life itself – life insurance is about more than just those big game- changing moments. By looking into the coverage that’s suitable for you today, you’ll also be able to make smart decisions for the years ahead.
Getting ahead while you’re young
Your twenties are all about finding your place in the world. It’s a decade where you’re moving out of home, navigating the first steps in your career and travelling the world. While taking out life insurance so young might seem like an extreme form of ‘adulting,’ it’s a decision Dynamic Orange financial adviser Simon Rayner supports.
“Personally, I would recommend you take out insurance when you start earning an income,” he says. “Ideally when you are young and healthy.”
Rayner suggests young people consider:
• a life insurance policy which is designed to help your loved ones cope financially by paying out a lump sum if you pass away;
• total and permanent disability (TPD) cover, which pays a lump sum in the event that a severe sickness or injury prevents you from ever working again;
• income protection insurance, which pays you an income stream if you are unable to work due to sickness or injury;
• trauma insurance cover, which will pay a tax free lump sum if you suffer from a major medical condition such as heart attack, cancer or stroke.
Getting your insurance cover organised while you’re young and fit means you’ll be able to avoid any loadings and exclusions which may hinder you when you’re older and medical conditions are more likely to be a problem. By taking out ‘level premiums’ you will pay a little more to begin with but in the long term you will save money.
Settling down and protecting your loved ones
Your insurance needs will probably change once you move into your thirties, as this is the decade when most people start settling down. According to the Australian Bureau of Statistics, our early thirties are when we’re most likely to marry and have our first child.
If you’re getting ready to tie the knot, it’s a good idea to meet with a financial adviser who can customise your insurance to meet your needs and help to provide financial security. Trauma insurance is the insurance cover that Rayner sees as the most essential policy for couples and families, as it helps to protect your loved ones financially if you suffer from a major traumatic event.
If you’re starting a family, not only should you consider practicalities like the long-term affordability of schooling when sorting out your insurance coverage, you should also have a policy in place to assist you if something happens to your child. Rayner recommends taking out ‘child cover’ – a policy which includes life and trauma protection – for kids over the age of two.
“It ensures that if your child suffers from a traumatic event, you have money to pay for selective treatment, and you’re not having to risk accessing savings or using debt to fund the cost of care or replacement of income,” he explains.
With an increasing number of kids living with their parents until their mid-twenties, it’s worth being aware that a child policy also has a continuation option that enables you to convert the policy to adult cover once your son or daughter has turned 21.
Planning for retirement and beyond
If the prospect of retirement is on the horizon, sound financial advice is key to setting you up comfortably for the years ahead. While you might be looking forward to having fewer day-to-day responsibilities and expenses, there are still benefits to having life insurance cover in your golden years.
Maintaining a life policy so that you can leave money for your partner after you die – a key part of estate planning – is a common reason retirees retain life insurance. Other circumstances that may encourage you to keep a form of coverage include the need to provide for any dependents, the wish to make a bequest to a charity, setting aside money for your funeral, or a desire to cover any outstanding debts.
Make sure you’re aware of your provider’s maximum entry and expiry ages. If you’re older than the entry age, you won’t be able to apply for the cover you’re after. Some policies will also expire sooner than others. That’s why getting your affairs in order prior to leaving the workforce is crucial.
“A solid retirement plan with cash flow planning can enable you to hold life insurance through to age 99,” says Rayner.
By planning ahead, you can ensure you have the means to keep your coverage in place for many years to come. Having that peace of mind is well worth the effort.
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