Life insurance policies are important

Dollar value ... How much is your family’s life worth? Source: Supplied

HOW much is your life worth in dollar terms?

It’s a tricky question that most of us never ask ourselves, but one we should if we’re serious about protecting our families if we get sick or die.

Every day, life insurance policies put a price on people, but in most cases it’s well below their true value. Research by Rice Warner has found that a typical middle-income family requires $680,000 of life insurance cover, but only has $258,000.

Working out your true dollar value might only require a few quick calculations on paper but it’s well worth the effort.

If you’re dead or disabled, your family is going to struggle unless all your debts are repaid, children’s education is covered and at least part of a replacement income is provided. For many this level of cover is going to head towards $1 million, but the good news is that insuring it usually won’t cost you an arm and a leg.

Superannuation can be a great structure to hold insurance that covers death, disability and loss of income. You won’t have to spend a cent of your own money because the premiums are paid by your employer’s 9.5 per cent compulsory contributions, although that will eat into your retirement nest egg.

How money saavy are you?

A new report by the Financial Planning Association and Zurich Financial Services says almost two-thirds of workers hold their life insurance through their super but a majority have never been advised about how much insurance they need.

It found that many people have misplaced trust that their super fund or their employer is going to know how much insurance they should have.

Misplaced trust .. don’t rely on your employers to worry about your insurance. Picture: iStock Source: Supplied

Well, that’s not their job, and the typical default super cover provided by a super fund is way below what most people should have, especially if they have dependants.

Life insurance is an umbrella term that includes death cover, which is pretty self-explanatory, total and permanent disability cover, income protection, and trauma cover that pays out if you suffer a critical illness such as cancer or heart attack.

Zurich’s Philip Kewin says young people without kids and a big mortgage may feel they don’t need to worry about any kind of life insurance, but this is a false sense of security. “For a young single person, not being able to work and being alive is the worst possible thing if you can’t fund it,” he says

Financial Planning Association CEO Mark Rantall says when death or disability strikes, any additional financial stress can be crushing. He recommends asking yourself four simple questions:

1. What are you looking to protect?

2. Why are you looking to protect it?

3. How much is adequate?

4. What structure is most effective for your life insurance?

While a comprehensive life insurance package outside super might cost more than $2000 a year — a big turn-off for many people — it’s worth having at least some extra financial protection. Type in “life insurance calculator” into your internet engine and have a look.

So back to the opening question: How much are you worth?

Of course, you’re priceless. But that won’t protect your family financially if you’re not able to

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