Is Life Insurance A Smart Investment?
Life insurance is popular among the rich and wealthy, the middle and lower class often wonder what it really is. Imagine working really hard for your family, what happens when you are gone?
Insurance is an investment that covers that. It is a contract between you and an Insurance Company or an insurer. The terms can defer, but basically, the insurer assures to pay a large sum to the insured person’s family upon death or illness in exchange for a calculated amount, premium (return on investment), paid over a period or till death.
Insurance companies in Australia offer life insurance for you and your loved ones and even though the terms are a bit different, the life insurance policies are affordable. The persons eligible for application in Australia, are usually between the ages of 18 – 74 years. I noticed that in Australia (unlike most countries), Insurance Companies do not need medical tests before you can apply for life insurance. Australian life insurance also covers you when you have a terminal illness like cancer, as they are aware that it can dry up your funds.
Australian life insurance pays you (when you have a terminal illness) or your family (when you die), a large sum of up to Two (2) million Australian dollars, which takes care of their financial needs.
Think about it for a while, it will be a happy death, if you are certain that your wife and children will live comfortably even after you are gone. Education fees are covered and their lifestyle will not change, though they will miss you immensely.
Life insurance in Australia doesn’t cover you only in death; there are several other types of policies too. Let’s look at them.
Trauma Insurance – Trauma Insurance pays a large sum when one contracts a list of illness, such as heart attack, stroke or cancer. Trauma insurance policy gives you a chance at life, and money when you need it most.
Income Protection – With this insurance policy, your income gets replaced (up to 75%), when you cannot work due to injury or illness.
Permanent Disability – As the name implies, this pays a large sum, when one becomes disabled and cannot go to work again. The large sum can pay your debts; medical bills and you can even start-up a business or invest in a profitable company, so you can keep up your life.
The benefits are spelled out in the policy for you, but before you sign, allow me to indulge you with them a little.
Protection – With life insurance, a large sum of amount (return on investment) is given to the family of the insured, upon death, illness or disability, depending on the terms of the policy.
Tax Benefit – If you have a life insurance, your tax treatment will be favorable, and it is nothing like other financial companies. Upon death, the death benefit comes with no tax.
Flexibility – You can decide to exchange your life insurance policy for another, without any taxation as life insurance policies are really flexible.
Cheap prices – Life insurance is very affordable for you. This is due to the competition between insurance companies, which is to your benefit.
Though life insurance has a lot of pros, it also has some cons to it.
Confusing – Life insurance could be confusing and hard to understand, especially when the agent is not carrying you along. Because of this, most people avoid it. But, asking some questions and seeking clarifications will get you all the benefits I explained above.
Lack of Trust – Trust becomes an issue, especially when you hear someone’s family is not paid his premium after death, by a certain company. Trusting insurance companies is a big issue, especially with the big (well-known Companies) ones.
Not Necessary – If you have saved up, have a major investment, or have no one depending on you, then life insurance becomes unnecessary, as opposed to people with children depending on them and family members. Even at this, making a charity the beneficiary of your life insurance will be a huge investment in your memory.
Having seen all the pros and cons, let’s look at life insurance critically. Is it really important? Is life insurance a smart investment?
Though we most times do not take life insurance seriously, it is a valuable investment for the family (beneficiaries). Whether it is a smart investment, is what we will decide at the end of this.
With life insurance, you pay a relatively little sum (premium), for a relatively large death benefit that your family will enjoy. Life insurance provides incomparable returns on investment. Let’s look at this scenario, a 40 years old man (in excellent health), buys a 20-years life insurance policy with a stipulated death benefit of $1.6 million, for a $760 premium per year. He pays this premium for 17 years and dies at 57. His family (beneficiaries) will get $1.6 million tax-free cash when he only paid a total of $12,920.
More so, you will agree with me that though death is inevitable, there is nothing more consoling than knowing that those who depend on you will not suffer because of your absence. Knowing that you have made provisions for them to pay-up your debts, mortgage and take care of other financial needs ease the heart and leaves you with no worries. Plus, whatever money they will get as a death benefit, will be tax-free, we all know how important that is for anyone in Australia. What a smart way to secure your family’s future.
Interestingly, life insurance policies can be tailored to meet individual needs and requirements. Select several companies to identify your individual insurance needs and explore. Preferably, it is safer to choose a life cover that is 10-15times your current earnings and make it more comprehensive by including illnesses, accidents etc, customize your policy to suit you. As an investment, your life insurance is something you should revisit at every major life event that increases your liability and/or responsibility.
If you hope to maximise the benefits of this smart investment, understand it, customise your policy and be reassured your family will enjoy the fruits of your hard work, even after you are gone.