A:You only need to think about the people in your life to get a sense of the personal risks we all face. Most of us know someone who has been diagnosed with cancer, was injured in a car accident, experienced a bout of depression or lost a partner suddenly. These are some of the personal risks all of us face that impact our ability to earn an income and continue meeting our financial obligations while providing for our future.

No-one wants to think about worse case scenarios but planning for the future is partly about building contingency plans so you're in a position to handle what life throws your way.

Understanding the risks

Struggling to make ends meet puts pressure on families and individuals at the best of times. Not being able to pay the bills and support your lifestyle at a time of personal distress such as the death of a partner or a serious illness can be catastrophic.

In the immediate term, preparing for the worst and hoping for the best gives you the comfort of knowing you and your family will be able to handle any bumps in the road. And if you need to rely on that safety net, you'll be able to focus on your recovery or your grief and not the pressure of paying the bills.

How will life insurance will benefit me

There are four main ways you can protect yourself and your family: savings, investments, life insurance or a combination of the above. Each of these gives you access to additional cash if you're unable to earn an income because of an accident or illness, or your partner dies.

Life insurance works in much the same way as insuring your home or car – but it protects your most valuable asset – you. How does it do this? You pay an annual premium. Your insurance company then pays out if something bad happens.

How does life insurance work?

A: Your premium for the different typesof life insurance depends on a number of factors including your age, medical history, what you do for a living and whether or not you participate in any dangerous activities. How much insurance you are applying for also plays an important factor in determining your premium.

The types of life insurance

How can I get the best value?

Myth 4: Life insurance is not affordable

A: How much cover you need will vary according to your individual circumstances and the type of insurance cover you're considering. Working out how much cover you need to secure your future shouldn't be difficult - it's about asking yourself the right questions and working through a simple process for each type of life insurance.

How much insurance do I need?

Lifewise calculator

If you remain unsure about the level of cover you require, we suggest you talk to your family and friends about it or seek advice from a professional financial planner.

A: Remember the minimum level of cover provided via your super is set by the super fund with all fund members in mind it is therefore unlikely to be exactly the level of cover you and your family need. Research has shown that on average those that have cover through their super policy have less than half the level of cover they need.

If you are unsure of the level of cover provided through your super fund, you may wish to speak to your super fund, your employer or a professional financial planner.

Don't I already have insurance?

Contact your super fund

If you remain unsure about the level of cover you require, we suggest you talk to your family and friends about it or seek advice from a professional financial planner.

A: Self-employed people face similar needs in many instances to employed people – with a few additional challenges. Self-employed people may have business partners, guarantors on business loans as well as the standard mortgage and dependants. In addition, many self-employed people may find that they either do not have super or if they do their fund may not provide insurance.

If you are self-employed, and using insurance for business purposes you may also find that premiums can in some circumstances be tax-deductible, for example, if you purchase the policy through your DIY super fund.

A: Yes, some products allow two people to be insured on one policy. This could be you and your spouse/partner or another person.

A: No, applications cannot be made on behalf of another person.

Please note that no benefits will be paid in any circumstances where the 'insured life' has not applied for the cover personally or where the application was completed on behalf of another person.

A: For most Australian policies, premium rates are not guarantee and may change from time to time. Once your insurance cover is in place, any change must apply to a group (for example all 35 year olds) and can not be made to individual policies regardless of any changes to your health, occupations or pastimes. You will be notified in writing at least thirty days prior to any changes in premiums taking effect.

There may be some exceptions to this, for example products with a level premium are guaranteed for the life time of the product but these are rare in Australia at this stage. Check out our glossary for more information.

Glossary

A: An insurer will ask you some questions about your health, lifestyle, occupation and family medical history to assess your application. Once a policy has been accepted and issued (provided your premiums continue to be paid when they're due) the insurance company must renew your policy until the age specified in your policy.

What is underwriting?

A: This depends on the policy. Some policies offer you an automatic approval of cover up to a certain amount. This means no medical examinations or tests are required when you apply. You may, however, be required to disclose any known pre-existing medical conditions.

Other policies will require you to undertake a medical examination or blood test. The results will be used to asses your personal risk factor.

At claim time, an insurer may require additional evidence to assess your claim. This may include obtaining medical evidence or information from your employer, or they may do a full review of your medical records.

What is underwriting?

The claims process explained

A: You should inform your insurance company immediately. They may decide to cancel your policy and renegotiate a new one on different terms.

Under your duty of disclosure, you must disclose all known pre-existing medical conditions so an insurer can better understand your risk profile. If you don't disclose this information, even if it was a mistake, your insurer may knock back any future claims.

A: No, life insurance policies are 'guaranteed renewable'. This means that provided you met your duty of disclosure at the beginning of the policy and continue to pay your premiums, an insurer cannot cancel your policy or increase your premiums due to any new medical conditions you develop after you take out the policy. This is why it makes sense to take out all types of life insurance when you are still young and healthy.

No, you don't need to be in the paid workforce to apply for Life Insurance or Trauma Insurance but you must be in full time work to take out Income Protection Insurance.

The types of life insurance

A: In some cases yes.

If you take out Life Insurance, Total and Permanent Disability Insurance or Income Protection Insurance via your super fund, all premiums are paid from your pre tax earnings.

For insurance premiums paid outside of super the following tables applies:

A: No, the money can be used as you or your beneficiaries see fit.

A: If you have a problem with any financial product or service, the best place to start is to talk to your financial services provider. If you are unable to resolve the problem with your provider, the Financial Ombudsman Service provides independent dispute resolution services as an alternative to taking your dispute to court. The service is free to consumers.

Financial Ombudsman Service