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Life insurance, do you have it?

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Do you have life insurance?

There's no cheery way to phrase this, but life insurance is about securing your family's financial situation against the event of your death. You don't have to obsess over morbid statistics, just make a financial decision about ensuring your dependents could meet their cost of living if you were no longer around.

Although every working Australian has a level of life insurance cover within their super it's usually not sufficient. Australia is still considered to be one of the most underinsured nations in the developed world. Research by the Financial Services Council revealed that 95% of Australian families are underinsured.

How much do I need?

First you'll want to calculate your requirements. For most people these include:

1. Debts - such as your mortgage, car loan, any credit card debts
2. Expenses - this includes living expenses for your family, as well as your children's education
3. Ongoing income - other income that your family may need in future

There's no exact science when it comes to how much you need. Sample calculations include:
• 10 times your annual income
• your mortgage plus 1 year's income
• 25 times what your spouse needs to live on each year

But it needs to be based on your own circumstances. How old are your children? How long until they finish school? Do you own more than one property or other assets? What is your spouse's earning potential? Would there be additional daycare needs with only one parent?

You can also subtract any coverage you have in your super from the total you think you'll need.

What are the options?

Term life insurance is the standard type of life insurance in Australia. This offers a lump sum when you die, and either expires at age 99 or at the end of a specific period of time, such as when your children are grown and financially independent.

You can choose between two different types of premiums: stepped and level premiums:

Stepped premiums: your insurance premium will increase each year as you get older but is cheaper in the beginning. This is the most common kind of life insurance.

Level premiums: your insurance premium doesn't change as you get older but is more expensive in the beginning.

Do your research

It's very important to do your research and compare different policies. Don't just go with the cheapest policy if it's not suitable for your needs. Always read the product disclosure statement (PDS) to find the benefits and any limitations on your cover.

Many life insurance policies come with the option of total and permanent disability insurance. Income protection insurance usually involves a separate policy, but remember that you'll often receive a discount for taking out multiple policies with the one insurer.

You should also review your policies regularly, especially whenever your income changes, and switch policies if there is something more suitable on the market or you need a different level of cover.

Above all, you'll want to find a balance between adequate cover and a reasonable premium, because there's no reason peace of mind shouldn't be cost effective. So don't delay - go and work out what your family needs and start comparing the life insurance policies on offer.

About the author: Kirsty Lamont is a finance expert at Mozo.com.au which helps Australians compare credit cards, home loans, insurance and other financial products. As a busy working mother Kirsty knows how important it is to consider your family's future in the financial decisions you make.
Link - Mozo site: http://mozo.com.au