Life insurance can be really confusing, especially for those who do not have any idea on what it is and how it works. Most of us are also a little intimidated to ask about it, because of our little knowledge. So to give you a better understand of life insurance, we’ve answered some of your most common questions.
What is life insurance?
Life insurance pays a lump sum on the death of the insured, and in some cases earlier if the life insured is diagnosed with a terminal illness.
What can the payout be used for?
The payout can be used for any purpose - typically it is used by beneficiaries to pay off debt, pay for funeral costs and look after the children’s schooling, and for the balance to be invested to replace the deceased’s salary to help maintain their family’s standard of living.
Where should your life insurance be held?
You can hold life insurance in your name, or in your superannuation fund.
What’s the pros and cons of holding it in my name?
Holding life insurance in your name means that the payout may usually be directed to your beneficiaries quickly and with certainty, and free of tax.
However, you cannot obtain a tax deduction on the annual premiums you pay.
What’s the pros and cons of holding it in my superannuation fund?
If your life insurance is held in your superannuation fund, you may effectively receive a tax deduction on the annual premiums. In addition, because your superannuation fund pays those premiums, it means you have cover without eating into your personal cashflow.
However, if you died, the trustee of your superannuation fund may delay the payment to your beneficiaries, and may even dispute who should receive the payment (especially if you have not made a valid ‘binding death benefit nomination’).
Further, the payment may be taxable at up to 31.5% if the beneficiary is a non-tax dependent.
What are my premium options?
Stepped Premiums - increase each year in line with your age. It is more affordable in the early years.
Level Premiums - generally remain constant until you’re 65 or 70, depending on which ‘Level’ premium option you have selected, at which point they convert to ‘Stepped’. It tends to be more affordable in the later years (before they convert to ‘Stepped’).
Do you have other questions about life insurance?
Ben Seeger, a financial adviser, can help you do that. He can answer your questions about life insurance and calculate how much life insurance you need to safeguard you and your family in the event something happened to you or to the insured person.
Contact him now for a no obligation consultation.