People in the later years of their lives may be considering how to take care of their loved ones after they go by taking out a life insurance policy. But, how does it work anyway?
Types of life insurance policies
There are two broad classes of life insurance policies:
- Term insurance. Term life insurance is designed to be active over a set number of years or when you have reached a certain age. Some insurance professionals claim going for term life insurance can be effective for coverage of loved ones at certain points of your life. However, insurers do not recommend the policy for elderly applicants due to age complications – there are insurers who set the maximum age of their term policies to 75 years old. Some policies also add an automatic termination limit at 99 years old.
- Group insurance. Group life insurance is usually available via your super fund and usually tailored for all the super fund’s members, most particularly through an employer. The policy lapses when you have reached retirement age, received your super upon retirement, or you’ve been unemployed at least six months.
Determining the level of coverage
When taking out a life insurance policy, the underwriter will base the premium on various factors related to your financial situation. They include your employment status, years left until your estimated retirement age, evaluation of all your assets and sources of income, number of dependents, and current health status, especially preexisting conditions.
Premiums for the elderly tend to be much higher as opposed to younger policy bearers, due to the possibility of death under various medical conditions. However, a rejection can be possible if the applicant engages in certain high-risk activities that may not be covered by the policy.
Why take out a life insurance policy
There are a number of critical reasons to shore up a rationale for getting life insurance.
- Funeral expenses. Funeral rites in Australia range between $4,000 for cremations to as high as $15,000 for burials – but in many cases, the bereaved are left to pay for everything, plus inheritance taxes, adding up to the stress and mental anguish. A solid life insurance policy can mandate a lump sum payout to cover all the necessary expenses.
- Settling debt. You might still incur debts of some form even in your later years and it may not be wise to let a loved one be burdened with much of it when you’re gone. A life policy can present those left behind with an adequate cashout to cover as much of the debt as possible. The amount that may be paid out for any credit repayments can even avoid the need to sell any assets to pay up.
- Support for loved ones. If you provide a substantial amount of income for your family, passing away will pose a problem for their long-term recovery and independence. In addition to the payout for funeral expenses, a life insurance policy may cover a certain amount to help loved ones.
- Estate preservation. A life insurance policy may work wonders for your estate given the divisions that may arise. Some estate planning experts claim that in filing your policy, naming your beneficiary or beneficiaries early on can give guarantees to them being taken care of in the event of your passing. A secondary set of beneficiaries may be possible if the original beneficiaries have already passed away. As for your estate, your last will can govern the division of assets amongst surviving loved ones who may not be beneficiaries themselves.
- Charitable purposes. If a policy bearer was engaged in philanthropy as a patron of certain charities, they may want to keep the support going after they are gone. Identifying a specific charity as a beneficiary can be possible, to provide a lasting legacy for the organisation.
It is never too late to cover all the bases for your loved ones. Consult your insurer now.
The ASAG Reverse Mortgage
Our team at ASAG supports our Australian customers who are about to enter retirement or already in retirement by offering our equity release facility to help boost their standard of living. One in particular is our reverse mortgage.
One of the uses of the ASAG Reverse Mortgage is to improve your retirement income stream by allowing you to access the wealth in your home without ongoing payments and selling your property. It is paid off when you permanently leave your home, either you downsize, move to residential care, or pass away. The funds can be used for any objective you see fit, which may include taking out a life insurance as part of your Retirement Planning.
The ASAG team is happy to assist you with further details on how our reverse mortgage works. Our lines are open on 1300 002 724 and at email@example.com, so feel free to contact us or send your enquiries about our equity release solutions.
You can also get started by using our tool below to assess your available equity.