Life Insurance - Do you know what your policy covers?

Although most Australian families have some level of life insurance cover, most are unaware of the inadequacy of their policy.

Research shows that most Australian families would be unable to continue covering the cost of their day to day living expenses such as the mortgage, medical bills, food, electricity and gas should the main breadwinner of the household unexpectedly have a serious accident or illness or even die.

Sadly, the chances of falling seriously ill during one's working life have been calculated by the Australian Bureau of Statistics as 3 in 4. So consider how your household would fare should the main income earner be forced to prematurely stop working.

Life Insurance in Super is not enough

Most Australians have only low-level life insurance cover such as the default coverage in a super fund. Disappointingly, this level of life insurance only covers about 20 per cent of their income, leaving most households desperately short changed! To ensure you and your loved ones are adequately insured, it's essential to understand how life insurance works so you can determine the best policy for you and your family's needs.

4 Life Insurance components

Life insurance is made up of four main components: death cover, total and permanent disability (TPD) cover, trauma cover and income protection. Deciding which of these components to include in your life insurance policy can make all the difference when it comes to coverage and subsequently, making a claim.

It's important to realize that death, TPD or trauma insurance policies don't provide temporary illness cover, but income protection does. So by electing to include income protection in your life insurance policy, you have the option of insuring up to 75% of your regular income should you find yourself unable to work due to sickness or injury. Income protection is paid weekly so you can continue to cover the day to day expenses such as the mortgage payments without dipping into your savings or investments.

Combined Life Insurance

So in summary, by taking out a life insurance policy that includes a combination of income protection cover of up to 75% of your salary, death, TPD and trauma cover at 25% of your salary, you have life insurance cover for all of life's contingencies and peace of mind that your family will be shielded from the possibility of financial hardship.

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Published on November 11-th, 2011 in Life Insurance
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.

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