Demystifying Insurance

Life Insurance Questions Answered

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Q: Why do men have to pay more for life cover than women?

A: Premiums are all about risk, and men are riskier to insure than women, so they pay more. Almost every typical cause of death will take men at a younger age than women, including heart disease, stroke, diabetes, infections, and almost every form of cancer. Women, on the other hand, only have higher mortality rates for a few typical causes of death, including breast cancer, Alzheimer's disease, and rheumatic fever. Of course, women also die from things which don't affect men such as pregnancy and childbirth complications, but these don't outweigh the death risks that come along with being a man.

Men also tend to participate in and die younger from high-risk adventure and leisure activities. Unfortunately, there's no way to get around the statistics, so if you're a man, no matter what insurance company you use, you're going to pay more for your policy than a woman would.

Q: Why do people who are overweight pay more for life insurance than thin people?

A: While it is true that a few extra pounds don't necessarily mean you're unhealthy, for the most part being overweight does increase your risk of illness and death. Obesity definitely makes you riskier to insure. That risk shows up in the size of your premium.

Being 50 or 60 pounds overweight can increase your premium by 50% over what you would pay at a normal weight for the same policy, and that's if you have no health problems. Add in any health issues such as cholesterol problems and your premium will likely be higher still. If you are having other problems as well, such as high blood pressure or pre-diabetes symptoms, you may find it difficult to get an affordable life insurance policy.

There is good news, though. If you lose the excess weight, you will often be able to shed problems such as high blood pressure along with it. Then when your weight and health are better, contact your insurance company for a reduction in premium. Don't wait until you've lost all the weight, either. You can continue to request premium reductions as you work your way to a normal weight.

Q: What happens if I have a hard month financially and skip paying my life cover premium?

A: Insurance companies usually build in a grace period of 30 days for such times. As long as you make your premium payment within that period, you'll be okay. If you fail to make the payment in that time, what happens next is determined by the type of life insurance policy you have.

If your policy is for term life insurance, the policy lapses and ends after the grace period is over. You typically do not get any money back from all the premiums you have paid to that point. If your policy is a type that builds up a cash value (often called whole or permanent life), most companies will automatically transfer your premium payment from the cash value you have built up. This will keep the policy in effect for as long as you have cash value left to cover the premium. Once you run out of cash value, if you do not pay the premium, the policy will lapse.

When taking out a life insurance policy, it's a good idea to consider taking any options or riders offered that will keep paying your premiums when you are too ill to work or become disabled.

Q: My employer offers a life insurance policy for employees. Am I better off buying into that policy, or should I buy my own?

A: Many employers offer life insurance as a group policy. There are several advantages to using this employee benefit, such as how easy it is to sign up for the policy. You are usually able to join without having a medical exam if you take the standard benefit amount offered. Because you are paying a portion of a group premium, your cost will usually be quite low.

This may sound like an ideal way to obtain a life policy, but there are a few disadvantages. You may not be able to obtain enough coverage to really take care of everything that will be needed if you die. Also, the insurance is only yours as long as you stay with that employer. If you're fired or decide to leave, you'll have to either replace the policy with one offered by your new employer, or buy one yourself. This type of policy is typically term life only, so there is no option for gaining cash value.

Just because the policy may not suit all of your needs doesn't mean you should avoid taking what your employer offers. You can easily supplement it with an additional life insurance policy of your own to make sure your family will get enough insurance if something happens to you. Or, buy your own policy and use the amount offered through your employer as a supplement. That way, you're still covered if you change employment.

Q: How do I know how much life insurance cover I need?

A: The general rule that most insurers suggest is to buy a policy that is seven to ten times the amount of your annual salary. That's a good ballpark figure, but if you really want to make sure your family is protected you'll want to consider a few things:

  • Current debts. How much do you owe on the mortgage? On the car, credit cards, other loans? Total up all of your debt. That is how much your life insurance will have to pay to eliminate debt as a source of stress on your family after you're gone.
  • Burial costs. The typical Australian funeral costs up to $7,000 and the price keeps going up. Make sure you include at least this amount when deciding how much to buy.
  • Cost of living. Being out of debt does not mean your family will have enough to survive on after your death. Consider the everyday costs of living: food, utilities, clothing, car repairs, etc. Do you have children? How much will it cost to see them to the end of their schooling, until they are grown and ready to handle life on their own? All of this should be considered in order to make sure your family is going to be able to make their way in the world without you.

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