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father walking on beach with child on his hip
Life insurance is really for the living and there's a lot of living to do!

Life insurance 101: Start the thinking on the right track here

You work hard for what you have and who you love—protect what you cannot afford to lose.

A life insurance policy is a contract with an insurance company that promises to provide your beneficiaries with a certain amount of money upon your death. In return, you make regular payments, called premiums.

Read in this article

The premium amount is based on factors such as your age, gender, medical history, extreme sports you play, whether you smoke and the amount of life insurance cover you're buying.

Pro Tip: Some life insurance policies can also include terminal illness cover that will pay out at 12 months before an expected end of life too and some can even pay an advanced payment within 24 hours of a death to help a family with immediate costs at a very difficult time.

They can use the money for:

  • Making up for the effect of your lost income
  • Funding a child’s education
  • Paying off household mortgages and other debt
  • Paying for your funeral and other related expenses

Be careful with overseas websites and blog articles that might make reference to multiple types of life insurance as these can be confusing and inaccurate when it comes to what may be available in Australia.

In the event of your unexpected death, the life insurance company will make a payment to your estate or nominated beneficiary.

Insight: Nominating a beneficiary can be a good idea when you want a specific individual to receive the insurance policy payout and don't want to risk a challenge to money transferred via your Will.

So how much life insurance do I need?

Well, that’s a great question and the answer is different for everyone and their personal circumstances. Even the government's MoneySmart website states ‘There is no correct answer.

We believe the answer can only be answered with certainty after a detailed conversation about what you need and what you can afford with a financial adviser like Sapience. But until then our explainer video you can Start Your Thinking here.

Pro Tip: Life insurance premiums can be paid from your super fund and are usually 15% cheaper but you'll need to remember that when you reduce the amount of money you have in your super fund, you also reduce the amount you have available to invest. (I know this sounds common sense but … it’s worth the reminder. That’s why many people make top-up contributions to their super fund to help offset that cost later.)

The big picture

A good goal would be to set up a life insurance plan (through one or more policies if needed) that, in the event of your unexpected death can compensate your beneficiary for the loss of your economic contribution to their life (or business – depending if you're using life insurance to protect business debts).

You’ll earn a small fortune over the course of your working life—protect those that will rely upon it

The final amount should take into consideration issues including:

  • The amount of financial contribution you can expect to make to your family from now until you would retire
  • How much would be required to replace your annual income?
  • How would you value everything else you provide for your family including; additional benefits that your family receives from your employment; for example employer-sponsored health insurance cover, free travel, vehicles or technology benefits and the value of personal services you provide, such as child care, cooking, home maintenance, etc.

Now you can begin to see the value you bring to your partner, family and dependants – whoever they may be.

Putting a backup plan in place, just in case, means that you can finally bring the financial security you and your family need and deserve at a time in life when money is the last thing you would want them to be worrying about

Why would you use Sapience to help you get your life insurance sorted?

We can help you answer the question, how much is enough and we provide a Claim Assistance Service to all our clients and their families, at the time when the last thing they need to think about is money.

Last words

  • Who may not need life insurance? There are some circumstances where you may decide that you don’t need life insurance. For example, life insurance as a single person may not be necessary if you have no financial dependents.
  • If you have no debt  - Some homeowners may no longer feel they need life insurance if they’ve paid off the mortgage. However, if you no longer need to protect a mortgage with life insurance, a cash sum from a valid claim could help your family with other costs, such as household bills and any other ongoing expenses.
  • If you have sufficient employer-sponsored life insurance in place - You may have a death-in-service, benefit through your employer that would provide your loved ones with some money to help them financially if you were to pass away while employed by your employer. However, it's worth remembering that this benefit will only apply for the duration of your employment, so you may still decide to get life insurance.


author pic drew browneDrew Browne is a specialty Financial Risk Advisor working with Small Business Owners & their Families, Dual Income Professional Couples, and diverse families. He's an award-winning writer, speaker, financial adviser and business strategy mentor. His business Sapience Financial Group is committed to using business solutions for good in the community. In 2015 he was certified as a B Corp., and in 2017 was recognised in the inaugural Australian National Businesses of Tomorrow Awards. Today he advises Small Business Owners and their families, on how to protect themselves, from their businesses.  He writes for successful Small Business Owners and Industry publications. You can read his Modern Small Business Leadership Blog here. You can connect with him on LinkedIn Any information provided is general advice only and we have not considered your personal circumstances. Before making any decision on the basis of this advice you should consider if the advice is appropriate for you based on your particular circumstance.

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