Death cover provides a lump sum payment in the event of death of the life insured. There is also provision for a payout prior to death, if the life insured is diagnosed with a terminal illness and has less than 12 months to live.
One of the common mistakes people make in considering life insurance is that it is only required for the family’s main income earner. A spouse or partner who is caring for young children or maintaining the home contributes significantly to the capacity of the income earner and without someone performing that role, they may not be able to continue working.
A lump sum life insurance payout can help your family:
- stay in the family home by paying out the balance of the mortgage or continuing mortgage repayments
- maintain a similar standard of living by providing funds that can be invested and drawn down over a period of time
- cover future planned expenses such as children’s education.
Premiums are generally not tax deductible for individuals, however, the proceeds of a claim are usually tax free. There is the option to fund death cover premiums through superannuation, which makes the premiums tax efficient. However, there are tax implications depending on who receives the benefit in the event of death.
Amount of cover
The amount of life cover you require will depend on a range of factors, such as:
- your debts
- age of any dependent beneficiaries and their future needs
- level of accumulated superannuation and other financial assets
- covering costs relating to your death (e.g. funeral expenses)
- beneficiary dependency status under Superannuation and/or Taxation legislation and the related tax implications (i.e. if there are higher taxes, the level of cover could be increased).
Over time, your requirements for cover will change. It is therefore important to review your insurances and make sure reasonable levels of cover are maintained. By way of example, if your outstanding mortgage has been reduced over time, the level of cover required may also reduce, which would also reduce ongoing insurance costs.