Nine big life insurance myths busted
The following is not personal financial advice, but it does contain useful information which many people should think about.
Before examining the nine myths around life insurance, consider one key truth: fully underwritten life insurance can bring an added degree of financial security and peace of mind into your life.
Myth 1: Less medical questions means quicker and better cover
Several directly available life insurance covers don’t ask many health questions when you apply. Often these have a higher number of and/or broader pre-existing condition clauses that may result in the greater likelihood of your claim being delayed or even declined. If you already have life insurance or are thinking about taking out cover, do your homework: always read the Product Disclosure Statement (PDS) and other documents from your insurer to make sure you know what you are, and are not, covered for. It can be easy to buy cover because it’s quick and/or cheap, but this doesn’t mean it’s the best life insurance for your particular circumstances.
Myth 2: I’m single, so I don’t need life insurance
Fact: Even if you don’t have any dependants or a partner, there may still be debts to pay and funeral expenses to cover if you were to pass away. For example, the average basic cremation in Australia costs upwards of $4000, with burials costing much more. If you don’t have many debts, nor a partner or children to think about, then your life insurance may cost you less than you think because you may decide that you do not need a high level of cover.
Myth 3: My superannuation fund’s life insurance is enough
Fact: The life insurance provided within many superannuation funds may not adequately cover your life insurance needs. Research shows that super’s median default cover meets only about half of the basic needs for households with no children. The proportion is lower for families with children – falling to less than 25% for families with just one child.
Myth 4: Life insurance is expensive
Fact: The cost of life insurance might surprise you – it may be less expensive than you think. Policies vary, and premiums will depend on your age, health and lifestyle. A non-smoker in their 30s can expect to pay less than $1 a day for comprehensive cover. It can be money well spent – life insurance could help to safeguard your family if you were to pass away.
Myth 5: Fully underwritten and Partially Underwritten covers are the same
Fully underwritten = greater certainty. One of the key points of confusion can centre around the difference between “underwritten” cover, which is assessed upfront, versus products that are not fully underwritten (“partially underwritten”), where the assessment is made at the time of claim when your family may be going through a difficult time. With fully underwritten cover, the insurer asks a number of health, occupation and lifestyle questions upfront and sometimes requires medical tests and details of your medical records. This process does take longer than cover that is not fully underwritten but results in far greater certainty about the risks the insurer is taking to provide cover, and importantly greater certainty for you at claim time.
Myth 6: Only breadwinners need life insurance
Fact: While it is important for the family’s main breadwinner to seriously consider taking out life insurance, many families make the mistake of not thinking about taking out cover for their primary caregiver. Stay at home mums and dads provide an important role that, while unpaid, may need to be replaced ‘in kind’. The cost of childcare, cleaning, housekeeping and home maintenance duties can be considerable. Bear in mind too, that the family’s main earner may have to reduce their hours of work in order to help care for the children.
Myth 7: I won’t need life insurance until I am older
Fact: Many people make the mistake of delaying taking out cover until they are older. But life insurance premiums are calculated based on a number of factors including your age and health, which is assessed before your cover commences, so it makes good sense to apply while you are young and healthy. Did you know that many claims are made by people aged in their 40s?
Myth 8: My health disqualifies me from life insurance
Fact: A medical diagnosis does not automatically mean you will no longer be eligible to obtain life insurance. You need to disclose your health conditions during the application process, but this doesn’t necessarily mean that cover will not be provided. In some instances, cover will be provided with an exclusion relating to your specific condition. Premiums may be slightly higher to reflect your increased risk levels, but if you are taking positive steps to manage your condition, you can keep any additional premiums to a minimum. Bear in mind that there are some medical conditions where NobleOak won’t be able to offer Death Cover, but these are limited.
Myth 9: I can file away my life insurance policy and forget about it
Fact: It is important that you keep your life insurance policy up to date and consider whether you should adjust your cover levels with significant life events. Also, with NobleOak’s life cover, with certain major life events – marriage, birth of a new baby, increasing your mortgage or adopting a child – you can apply to increase your Death Cover without any further medical underwriting (subject to limitations). This facility can help act as a buffer against being underinsured as your life circumstances change.