How does it do this?
You pay a monthly or annual premium. Your insurance company then pays out if something bad happens.
What does it cover?
There are four key forms of life insurance – Life Insurance, Total and Permanent Disability Insurance, Income Protection Insurance and Trauma Insurance. To varying degrees, these products will provide you with either a lump sum or a monthly income in the event of accident, sickness or death. Just what is covered, depends on what type of life insurance you take out.
How much premium do I pay?
This depends on the type of cover you want, where you buy it and what sort of risk the insurance company assesses you to be. But generally speaking premiums are affordable for most Australians. For example, a 35 year old male, non-smoker applying for $500,000 of Life Insurance cover will pay approximately $30 a month. A 35 year old female, non-smoker applying for $500,000 of Life Insurance cover will pay approximately $25 a month.
Premiums can usually be paid monthly, quarterly, half yearly or yearly to suit your budget.
Why does the company assess my risk?
If you’re young, fit and healthy and work in a low risk occupation, you’re likely to be a lower risk than someone who’s overweight, smokes and works in a high risk occupation like a construction worker or miner. It’s common sense really – the lower the risk, the lower the premium. When you apply for insurance, companies often ask some basic questions that will help them assess your risks – it’s important to highlight that these questions are designed to help insurers provide you with access to cover, not to find a reason to not cover you. This process is called underwriting and in very few cases, insurers may ask for further details from you.
Will an insurance company always assess my risk?
No – not all policies are underwritten. If you have access to insurance through your super or through your employer, the insurance company may decide not to assess the risks for every individual in the policy. Instead they may spread the risk across everyone in the group. This is called a ‘Group Policy’.
Source Lifewise – Part of a series on “understanding life insurance”
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