What is life insurance and how do I choose the best policy for me?
by Verve Super
Life insurance can be a confronting topic, as thinking about worst-case scenarios isn’t ever easy. But knowing that you and your loved ones are covered can bring about a great deal of comfort, especially if your cover is sorted well before there’s a need to make a claim.
Life insurance basics
Life insurance can provide you or your loved ones with financial support if you pass away or are diagnosed with a terminal illness or disability. This support can come in the form of a lump sum or ongoing payments, depending on the situation and policy. Life insurance, in essence, is designed to help you and your family to cover one-off or ongoing expenses, such as funeral costs, mortgage or kids education expenses, or home modifications.
How does life insurance actually work?
You can think of insurance as a two-way promise. If you don’t feel you can financially afford a risk to occur, taking out life insurance is one way to transfer that risk to an insurance company. The life insured (or the policy owner) agrees to pay premiums, and the insurer agrees to pay out an agreed amount(s) if a certain event(s) should occur.
Different life insurance products are designed to protect you from different events that can occur. Here’s a quick rundown:
- Life cover (also known as Death cover) – pays a lump sum to your dependant(s) or estate when you die
- Total and permanent disability (TPD) insurance – pays a lump sum to help with rehabilitation and living costs
- Income protection insurance (also known as Salary Continuance cover) – provides you with a monthly income stream if you can’t work due to illness or injury
- Trauma insurance – covers you if you’re diagnosed with a major illness
Let’s look at each type of life insurance in a little more depth:
Death: This provides you or your dependants with a lump sum payment in the event of your diagnosis with a terminal illness or death.
Total & Permanent Disability (TPD): This provides you or your dependants (as applicable) with a lump sum payment in the event you become totally and permanently disabled. In some cases, you can have a combined ‘Death & TPD’ policy. In some cases, you can have a combined ‘Death and TPD’ policy. Generally, in these policies you elect an amount of cover for a TPD claim and another amount of cover for a Death claim, which you pay for together in a single premium. If you make a successful TPD claim, you will be paid out the TPD amount and your cover will revert to Death only cover for the amount of death cover you elected. It’s important to read the terms and conditions of each policy and ensure you understand the type of insurance cover you’re purchasing.
Income Protection: This is sometimes called ‘salary continuance insurance’. Income protection insurance offers a monthly income stream in the event that you are sick or injured and not able to attend work (not if you lose your job for other reasons).
Trauma insurance: Also called ‘critical illness’ or ‘recovery insurance’. This pays a lump sum amount if you suffer a critical illness or serious injury. This could include cancer, a heart condition, major head injury, or stroke. It is not typically available via most super funds.
Do I already have insurance?
If you’re a Verve Super member, we don’t provide insurance as a default option with your superannuation. You will only have insurance in your super with Verve if you have opted in. You can check your cover via your online super account at any time – click the log-in button at the top of this page. If you’re considering applying and have read the Insurance Guide and other related documents, you can contact us via email for a quote. If you’re ready to apply, please download and send us a completed life insurance application form.
If you’re not a Verve member, or if you have multiple super accounts, you might have existing cover as part of another super fund. It’s best to confirm this with your fund(s) by giving them a call or logging in to your online super account(s).
It is also possible to get insurance outside of super. You may have already applied directly to an insurer, or via a financial advisor. If you have insurance you should be receiving communications from them. It could be worth checking your inbox to find previous emails from them. If you’ve recently changed address or email accounts, you can call your financial advisor or the insurance company(s) you think you may have a policy with. They should still be able to help you, even if it turns out you don’t have an existing policy with them.
Do I need insurance?
- Need help navigating insurance? Start here
- You can also read through our Insurance guide
- Prefer to outsource it? As a Verve member, you can book a complimentary session with Alysia from our Support Squad. Alysia may be able to cover different insurance options available and provide further general information about insurance. This session will not contain personal financial advice. For personal financial advice please engage a Financial Adviser.
Some handy life insurance calculators
- How much insurance cover do I need?
- MoneySmart calculator
- How do I compare life insurance providers?
- The folks at MoneySmart also have a straightforward comparison tool to help you compare things like claims rates for different insurers
A reminder that these calculators are general in nature and don’t take into account your personal financial objectives, situation, or needs!
Checklist! A few things to think about before you take out a life insurance policy
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
It pays to double-check whether you already have life insurance through a super fund. This way you can be sure you’re not paying for the same insurance cover twice.
Understanding different insurance premiums. What’s the difference between default cover and voluntary underwritten cover?
Insurance premiums are paid into a statutory fund; a ‘risk-sharing’ pool in accordance with APRA regulations. This pool is then used to pay out any customer claims.
The balance of this pool needs to be maintained by the insurance company in order to keep claims costs within expected limits and to keep premiums affordable for the benefit of customers.
‘Default’ cover is when you are provided with a standard amount of insurance based on factors that generally include your age, sex, occupation, and/or state you live in. The cover is applied to your account without the need for you to undergo underwriting, i.e. provide your medical and personal history.
Many forms of ‘default’ or ‘standard’ levels of life insurance provided by superannuation and workplace schemes (and in some common consumer policies) do not require underwriting. However, there are generally limits on the amount of cover you can hold with default insurance.
If you want more than the default level of cover, some form of underwriting, or risk assessment, must generally be undertaken. ‘Underwritten’ cover usually involves completing an application form and a personal statement (or proposal form), which require information on things like residency, occupation, financial status, any pursuits and pastimes, and medical history. The underwriter’s role is to look at the best information available and to arrive at a conclusion that is fair, both to the applicant and to the pool of funds to cover the risks.
The underwriting application process is typically much more detailed than applying for default cover and, depending on your medical history, you may be required to obtain more information, such as getting a blood test or requesting details from your doctor. While the underwriting process does require some additional steps, it can provide an additional layer of reassurance; by knowing exactly what your life insurance policy covers you for.
If you’re considering life insurance through your Verve Super fund, you can read more information about what’s available to you here. Got a specific question? You can contact our ace team today.
This blog is published by Verve Superannuation Pty Ltd (ABN 65 628 675 169, AFS Representative No. 001268903), which is a Corporate Authorised Representative of True Oak Investments Ltd (ABN 81 002 558 956, AFSL 238184), as the Sub-Promoter of Verve Super.
Verve Superannuation Pty Ltd and True Oak Investments Ltd are not licensed to provide personal financial advice. The information contained in this blog, including any financial guidance, is general in nature. You should consider seeking independent legal, financial, taxation or other advice to ensure that your financial decisions are suited to your unique circumstances.
You should also read the Product Disclosure Statement, Additional Information Booklet, Insurance Guide, Target Market Determination and Financial Services Guide before making a decision to acquire, hold or continue to hold an interest in Verve Super. When considering financial returns, past performance is not indicative of future performance.