10 Things Australians need to know before buying life insurance

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life insurance
Buying Life Insurance. flickr/moolanomy

The life insurance market in Australia has grown over the past couple of decades; today, the number of insurers and varieties of insurance policies on offer, are huge. For customers in Australia looking to buy, renew, or switch your life insurance policy, here are 10 things to consider.

Look beyond the advertisements – It is strange that Australian insurance shoppers end up paying more than twice the amount in monthly premiums for the same level of insurance. If you fall for marketing-driven Aussie life insurance firms, chances are you'll end up paying a lot more than necessary. Insurance firms that pump a lot of money in advertising have to recoup the same through inflated premiums, so watch out.

Think, Plan, Calculate – It’s surprising how most life insurance buyers purchase policies just because they have to, and hence, either end up underinsured, or pay unnecessarily huge premiums. How much is the family’s annual expense? What are the debts? For how long would they want insurance money to provide for the sustenance of the family? The answers to these key questions can help decide the right amount of life insurance the family needs.

Compare and understand different types of life insurance – Find out the key differences between term insurance and cash value insurance – the two key life insurance categories. One might also want to learn the basics of whole life, variable life, and universal life insurance under the cash value life insurance category. Evaluate current needs and future needs, and find the best life insurance match.

Think twice before switching to a new policy – The decision to switch a policy should not be driven by saving a few pennies. While it's understandable that the volatility of the Australian economy is driving middle income individuals into savings mode, insurance shoppers also need to realise that their monthly dose of savings can't come out of life insurance.

Know about the renewal policies of the life insurer – Most life insurance policies offer the flexibility of renewal at the same premium even if the insurance owner’s health situation changes; check if your insurance policy offers this benefit. An insurance policy that appears inexpensive at first can often prove to be an expensive bet at the time of renewal, so know everything before making decision.

Know the Policy – Be the most voracious reader when it comes to reading the fine print of an insurance policy. How will benefits accumulate in the policy? What will be the year on year variations in the benefits? Is any part of premiums not guaranteed? How do interest rates come into the picture? A good life insurance firm will connect customers to an agent who will address all these queries.

Proactively review insurance needs – As times change, so do a family's insurance needs. Inflationary measures from the Australian government have changed the life insurance requirements of several families. Aussies don't want to be left with insufficient insurance because of a failure to review the current policy in terms of changing economic conditions, as well as varying family needs. 

Accidental death cover versus full life insurance – Statistics revealed by Australian market studies indicate that merely 10 percent of annual deaths are caused by accidents. The direct implication for life insurance shoppers: a policy that’s restricted to just accidental death coverage leaves 90 percent of other causes of death uninsured.

Look for discounts – A multi-life policy refers to a couple opting for life insurance from the same insurer. Multi-policy refers to buying life insurance along with others insurance covers, such as medical cover for trauma. Several Aussie insurers offer substantial discounts on multi-policy and multi-life insurance policies, so check out the market for such offers while going insurance shopping with your spouse.

Know the insurer – Arguably, the most critical part of buying life insurance is having peace of mind and trust that the insurer will actually honour the claim in a timely manner when the need arrives. Look to compare different life insurers in Australia, leveraging existing comparison websites, and customer's own judgment. Factors to consider are: time in market, holding by a strong and reputed parent company, claims processing history, credit score of the company, and reputation in the market.