Shortly after deciding what type of life insurance to get, another decision will pop up. “How much cover do I need?”. It’s a question you should work through with your financial adviser; however, reading this article will get you thinking about some of the things to consider.
Life cover: How do I determine how much cover I need?
For many people, life cover can be the foundation of a financial safety net. It provides for the worst-case scenario, where the insured person dies or gets a terminal diagnosis with less than 12-months to live.
Life cover pays a lump sum and while there’s no maximum level of cover, you might not automatically get the amount you apply for. The level of cover you request is subject to medical and possible financial assessment.
If you’re wondering ‘how much do I need as a rule of thumb’? Well, there’s no rule of thumb, because everyone’s different. But here are some points you may want to think about before and when talking to your financial adviser and getting quotes for cover:
- How much debt would you leave behind? Think about home loans, personal loans, business loans and credit card balances.
- What would a funeral cost? If you have a Life cover policy with Fidelity Life, we may authorise an advanced payment of up to $15,000 to cover funeral costs.
- How much does your family need every month for living costs?
- What big plans do you have for your family’s future? These could include private education, tertiary study, travel or even something like buying a family batch.
How much trauma cover do I need?
Trauma cover provides financial protection from serious illness. It pays a lump sum if the insured person is diagnosed with a serious medical issue or illness that meets the specified definition listed in the policy wording. Fidelity Life, Trauma cover includes more than 40 conditions. See this customer brochure for the list.
As with life cover, you and your financial adviser will need to work out how big you want your lump sum payment to be. For Fidelity Life Trauma cover, the maximum limit for cover is $2m. Answers to these questions could help guide your decision about the lump sum amount you may need:
- How much does your family need every month for living costs? While you’re recovering from a serious illness, your income is likely to reduce or disappear entirely.
- What loan repayments would be impacted by a prolonged gap in income? Think about home loans, personal loans and credit cards.
- Would you want some money to pay for medical treatments, therapies and home care services that aren’t covered by the public health system?
- Would your spouse/partner have to take time off from work to care for you or look after children?
How much TPD cover do I need?
TPD stands for ‘total and permanent disability’. It’s a type of life insurance that pays a lump sum if illness or injury leaves you disabled and likely unable to work ever again. Fidelity Life TPD cover allows to apply for a lump sum of up to $5m, but approval is subject to medical and where appropriate financial checks.
Here are some things to discuss with your financial adviser when choosing a lump sum amount for TPD cover:
- How much debt do you have? Consider home loans, personal loans and credit cards.
- Would your house need any accessibility modifications if you couldn’t walk or see anymore?
- Would you need to pay for childcare, nursing care or house cleaning?
- Could your vehicle be modified to take a wheelchair? Or would you need a different vehicle?
- Would you like to have enough money to pay for therapies not covered by public health?
How long could I wait until income protection cover kicks in?
Getting income protection cover is a bit like buying yourself extra sick leave. If you get sick or are injured in an accident and can’t work for a while, Fidelity Life Income protection cover can provide a monthly payment equivalent of up to 75% of your before-tax income. Payments start after a waiting period, which you choose when you get cover. Fidelity Life offers a choice of 7 waiting periods: 2-weeks, 4-weeks, 8-weeks, 13-weeks, 26-weeks, 52-weeks or 104-weeks.
When you’re choosing a waiting period with your financial adviser, think about these questions:
- How much sick leave do you have?
- How long would your savings last if you weren’t earning for a while?
- How would you feel about dipping into your savings?
You also need to choose how long you’d like monthly payments to continue while you’re sick or injured and can’t work.
Both waiting period and how long you get paid for have an impact on the cost of your cover. It’s important to consider your options based on your situation and needs.
How much monthly mortgage repayment cover do I need?
Similar to income protection cover, monthly mortgage repayment cover is designed to replace income if you’re unable to work for a while due to sickness or injury. It provides an agreed monthly payment that can be used to cover home loan repayments, rent or other living expenses. Fidelity Life Monthly mortgage repayment cover can provide a payment amount of up to 110% of your contractual mortgage repayments or 40% of your income. A waiting period applies before payments start.
To work out a waiting period and whether you choose the 110% of mortgage repayments or 40% of income, discuss the following with your financial adviser:
- What percentage of your income goes to paying rent or a home loan?
- How long could you manage once your income stops?
Work out cover amounts and get quotes.
If you’re curious about how much life insurance does the average person carry and what might be for right for you, we recommend you contact a financial adviser. Your adviser can help you to choose cover amounts and waiting periods, and then provide quotes based on the cover levels you need.
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.
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