This answer to this question will be different for every person. Having life insurance provides peace of mind and financially protects your family should the worst happen.
Once the decision to take out cover is made, your next step is to work out the type and level of cover you require.
To begin, ask yourself the following questions :
- How much is needed to repay your mortgage and other outstanding debts? This should include personal loans, credit cards etc.
- How much would your family need on a day-by-day basis without your regular income? Remember to consider sufficiently in today’s two-income standards that both partners will need to cover.
- Do you have any future financial obligations? Perhaps you have small children and you need to cover educational costs. You will need to determine these types of additional costs as well as allow your family to maintain their current standard of living.
- Would you need funds to meet immediate expenses such as funeral costs?
A great way to help you calculate how much cover is to use the CIMER method, which stands for:
C – Clean up fund.
How much do you need to settle all outstanding debts from your credit cards to funeral expenses?
I – Income.
The replacement amount for your regular income.
M – Mortgage.
The full amount to pay off your mortgage.
E – Education.
A lump sum to cover the costs of your children’s education, including school and university.
R – Retirement.
A lump sum benefit to fund your retirement.
The next step is to assess what insurance cover you have in place (including any cover you may have through your superannuation) and determine if the value is adequate.
- Check your super fund – cover through a super fund can be cheaper than a standalone policy.
- Shop Around – compare policies and get multiple quotes to know exactly what you are getting. Take your time to get it right for you and your family.
- Don’t avoid it – It’s a difficult subject but don’t put it off just because of a difficult conversation.
- Indexation – Check to see that your policy includes automatic increase so that your sum insured keeps pace with the rising cost of living.
- Don’t just insure the breadwinner – Many are two income families so don’t only insure one of you. What is the impact to the family if either one of you dies?
For further information about Life Insurance see https://www.moneysmart.gov.au/insurance/life-insurance/life-cover
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