Myth #1: Life insurance only pays out when you die.
If you're wondering 'does life insurance only pay out if you die?', the answer is ‘not always'. Many life insurance payments go to people who are sick or injured, but definitely not dead. In fact, only 40% of the claims Fidelity Life accepted between 1-July 2021 and 30-June 2022 were related to a Life cover policy. This is the type of life insurance that's designed to pay out when you're diagnosed with a terminal illness (and given less than 12-months to live), or when you die. The majority of accepted claims were for other types of life insurance, designed to support you if you're sick or injured. Here's a quick guide to some common types of life insurance, how they can help and when they pay out.
When does life insurance pay out?
- Life cover pays out if you die, but it can also pay out if you get a terminal illness diagnosis and have less than 12-months to live.
- Trauma cover pays out if you experience a serious medical issue or illness that's listed in your policy. You can see Fidelity Life's list in our fact sheet.
- Income protection cover pays out if you're injured or have a sickness that leaves you unable to work for an extended period. Depending on your policy, this can be either an agreed value or a percentage of your monthly income at the time of claim.
- Total and permanent disability (TPD) cover pays a lump sum if, as a result of a sickness or injury, you become totally and permanently disabled and are unlikely to ever work again.
- Mortgage repayment cover provides a monthly payment to help meet your financial commitments if you're unable to work due to sickness or injury.
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Myth #2: Life insurance is only for older people.
If you're on the younger side, you might be under the impression that life insurance isn't yet relevant to you. But life happens to us all, so life insurance is designed to help adults at every stage of their lives.
Income protection cover could help you maintain your standard of living if you're unable to work due to illness or injury, which can be especially important if you're living independently and rely solely on your income to pay bills and expenses. And if you're living with friends or a partner, an income protection payment could prevent you from being unable to pay your share of the rent, or having to use your hard-earned savings instead.
Considering different types of life insurance can also be particularly important for those with dependents. If you have people who rely on you financially - such as children, a partner or elderly parents – the right cover can help to take care of them if something happens to you.
Myth #3: I don't need life insurance because I have savings.
While savings can help out, are they enough to provide ongoing financial support for you or your dependents if sickness or injury was to continue for a longer period of time? Or worse, if you were to die unexpectedly. And if you have to burn through your savings because you're too sick to work for a while, it could take years to rebuild.
If you die, a life cover payment can provide a lump-sum payment to your loved ones or those of your choosing, which can help go towards a home loan, living expenses and future plans (like university education).
If you get sick or injured, a payment from income protection, or mortgage repayment cover could help to keep your household ticking along while you recover.
Myth #4: Life insurance is only for people with kids.
While having children is a common reason for getting life insurance, it's not the only reason. Cover types like income protection can pay if you get sick and can't work, helping you avoid dipping into your savings, going into debt or relying on friends and family. Plus, if there's anyone else who relies on your income – such as a partner, parent or sibling – life insurance can be the backup plan, kicking into action if your income is affected by sickness or injury, or if you die. Some other common reasons behind people's decisions to get life insurance as a financial safety net are:
- To protect their own financial independence.
- To protect a mortgage.
- To financially support parents or other family members.
Ready to find out more? Get in touch.
Myth #5: If one parent is not in paid work, only the working parent needs life insurance.
For families with just one income, you may think to only insure the person who's earning. However, the input of the parent providing childcare and taking care of things at home can be just as crucial to protect. If that person became sick, injured or died, who would look after the home? Childcare and housekeeping can add up. A financial adviser will help you understand what's right for your family, depending on your needs.
Get the facts from an expert.
Don't let life insurance myths get in the way of your financial security. For life insurance advice that's based on real facts and figures, including a needs analysis to identify the type of cover that could be right for you, find a financial adviser.
DISCLAIMER: The information contained in this article is a summary of the key points of the insurance cover(s) mentioned and is general in nature. This article does not constitute a financial advice service. All covers are subject to the definitions, standard exclusions/limitations, terms and conditions contained in the full policy documentation which is available from Fidelity Life or your financial adviser who holds a Distribution Agreement with Fidelity Life. All applications for cover are subject to underwriting criteria.