Life events that should trigger a review of your insurance
Written and accurate as at: Nov 14, 2024 Current Stats & Facts
Most Australians have life insurance through their super fund. While this can be a cheaper and more convenient option than purchasing a standalone policy, the bundling of the two often leads us to think that our insurance doesn’t need attention, let alone active management.
But your insurance doesn’t have to be set-and-forget. In fact, there are plenty of situations where reviewing your insurance can leave you and your family better off. Below, we explore a few major life events that should trigger a rethink of your level of cover.
Changes to your relationship
Getting married is typically one of life’s happiest moments, so you might be reluctant to spoil the occasion with talk of ‘what-ifs’ and worst case scenarios. But the merging of your lives and finances warrants thinking about your insurance and how it can be changed to better suit your new circumstances.
For starters, you’ll probably want to nominate each other as beneficiaries on your respective policies. You could also look into increasing your cover so your spouse isn’t left struggling if the worst was to happen to you. Take a look at your household expenses and debt obligations and work out how much you would need to service them if you lost your income.
And if you’ve recently separated from your spouse, reviewing your insurance is an essential step in the process of disentangling your financial lives. If you have children you might decide to make them the sole beneficiaries. And if you don’t have children and you and your spouse have completely parted ways, you might choose to lower your coverage.
Changes to your debt levels
Your mortgage is a multi-decade commitment, with ongoing repayments likely weighing on all other financial decisions you’ll make. While you and your partner might be able to handle it now, would that still be the case if one of you passes away or can no longer earn an income?
If you’ve taken on a large amount of debt recently, it might be necessary to increase your level of cover so that any lump sum payments (if you pass away) or replacement income streams (if you’re temporarily unable to work) are enough to meet your debt obligations.
On the other hand, if you’ve recently paid off your mortgage completely or made significant progress paying it down, it might be worth reducing your cover, since it’s no longer an expense your family will have to worry about in the future.
Changes to your finances
Beyond taking on or paying off debt, there are a few more financial milestones that should prompt you to examine your insurance levels. These include coming into an inheritance, selling a property, and even changing jobs or receiving a pay bump.
Benefit amounts, particularly income protection, may be linked to the income you’ve listed on your policy, so if you’re suddenly earning more you might need to make sure the sum you’re insured for reflects that. This can give you confidence that the lifestyle you’ve gotten used to won’t be sacrificed too much if an illness or injury temporarily takes you out of the workforce.
Changes in your health
People who smoke, have pre-existing medical conditions, or a family history of health problems often have to pay higher premiums given the increased risk they pose for insurers. So if you’ve made a lifestyle change that has improved your health, like quitting smoking or getting your weight under control, you might be eligible for a reduction in your premiums.
Changes to your family
Whether you’re having your first child or your fourth, there’s no denying that a new addition to the family means more responsibilities. Besides updating your beneficiaries to include your newborn, you’ll also have to consider whether your current level of cover is still sufficient.
If disaster were to strike and your family could no longer rely on you to contribute, you’d want to make sure things like your child’s health and education don’t suffer. Having the right level of cover in place can help prevent an already difficult situation from having a lasting impact on your family’s finances.
Keep in mind that adjusting your cover may change the amount you pay in premiums, and this is ultimately deducted from your retirement savings. Think carefully about the level of cover you need and if you’re uncertain, make sure to speak with a financial adviser.
