Life Insurance cover is about protecting those who are left behind. Find out how the right policy can ensure your family isn’t left in debt if the worst should happen.
Why Life Insurance?
A Life Insurance policy can give you confidence your family will be provided for in the event of your death, or if you are diagnosed with a terminal illness. The right insurance may be able to take care of your debts so that your family is not shouldered with repayments, allowing them to keep their home and continue living life as you had planned together.
What happens to my debts after I die?
Throughout life it’s very normal to accumulate a certain level of debt, whether this is in the form of a mortgage, credit cards, university or study loan. However, when a person dies, their debts will generally still need to be paid. This can affect families and loved ones left behind. For example, a mortgage that they and their partner were paying off together could become the responsibility of their partner to pay off. And, as their estate must pay their personal debts before their assets can be distributed, debts can leave less money for loved ones.
How can life insurance help to cover my debts?
Your estate or, where you have nominated them, your beneficiaries will receive your life insurance pay out.
- A beneficiary will only receive the payment if they are duly nominated. In the case of insurance arranged in super, the nomination must be valid, and binding for greater certainty.
- Outside super, your nominated beneficiary/ies, as confirmed in writing by the insurance company, will receive their share of the payout.
This money is a lump sum payment and the life insurance company does not control how it is used. If paid to a beneficiary, they can use the pay out as they see fit. On the other hand, if paid to your estate, the money will be distributed according to your will (or, if you don’t have a will, according to the law that governs how to distribute estates of people who die intestate). Thinking about who will be financially affected if you pass away, and how you want your life insurance benefit to be used, will help you to decide whether to leave the money to a nominated beneficiary (or beneficiaries), or leave it to your estate.
Can I set up or adapt my life insurance to suit my level of debt?
When deciding how much life insurance a person needs, debts, including mortgages, are usually taken into consideration. You may be asked about your levels of debt upon application and should be aware of your overall debt levels throughout your life. If you take on more debt, it may be appropriate to increase your cover; similarly, as you pay down debts over your lifetime, you may wish to reduce your cover, if that cover was originally intended to cover a larger original debt.
Your Life Insurance policy can be designed to make sure your loved ones aren’t shouldered with hefty repayments or reduced inheritance. Some policies have features that allow you to increase your cover easily when certain life events occur. These events might include getting married or applying for a mortgage. You may be able to increase your life insurance to reflect these big milestones, by or up to certain amounts, without having to provide new evidence of your health or hobbies, where you have taken out a policy that includes this feature.
You should always make sure you re-assess your level of cover to reflect your changing circumstances and levels of debt to help make sure your family remains protected.
How do insurers know who to send the pay out to?
When you sign up for life insurance, you may be asked to name one or more people to be your Beneficiary. When deciding who you would like to nominate as your beneficiary it can be helpful to keep in mind people who are most likely to be affected by any outstanding debts. If you don’t nominate a beneficiary, the life insurer will pay the money to your estate.
If you would like to discuss your options, feel free to get in touch.
General Advice Warning
Past performance is not an indicator of future performance. The information provided in this article is general in nature and does not take into account your particular investment objectives, financial situation or insurance needs; we, therefore, recommend you seek advice tailored to your individual circumstances before making any specific decisions. Dobbrick Financial Services and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. Innova Asset Management is a Corporate Authorised Representative of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357 306.