How Does Life Insurance Work?

As any respectable financial advisor will tell you, life insurance is crucial — but what’s typically omitted from their valuable guidance are the facts of exactly how does life insurance work?

At ATB Wealth Strategies, we are different.

Across all our financial planning services, we understand that your monetary peace of mind comes not only from having a solid, strategic, and robust wealth management plan in place — but also from possessing a thorough grasp of where your premiums are going, what the provider does with your hard-earned Australian dollars, and what happens should you need to make a claim.

So, in that spirit, what is life insurance, and how does it work?

If you want advice on life insurance, speak to our financial planners at ATB Wealth Strategies now.

How Does Life Insurance Work? The Basic Principles

In many ways, life insurance is no different from most other safeguarding policies.

You formulate a contractual agreement with an insurer — where you undertake to pay regular premiums, and they promise to recompense you, or your named beneficiaries, should a seriously unfortunate event covered under the policies occur.

Depending upon the policy, tailored by ATB Wealth to your needs, this payout can occur in the event of death, terminal illness, and total permanent disability (TPD).

For an in-depth guide to our life insurance services — and we can work with you to create a beneficial and reassuring strategy — check out our ultimate life insurance guide.

Don’t put it off till tomorrow — you never know what can happen, speak to one of our financial experts today.

How Does Life Insurance Work — The Cost to You

One of the most common questions we’re asked when looking at how life insurance works, is how much will it cost.

At ATB Wealth Strategies, our experienced team of financial planning specialists diligently source for you the most affordable and suitable life insurance — ensuring that you receive the comprehensive protection you want and need, and aren’t paying for superfluous or irrelevant cover.

Typically, the cost of specific life insurance depends on the following factors:

Gender

It’s a fact of life that women generally outlive men. Hence, if you represent part of the 49.8 percent of the Australian population who are male, you can expect to pay a higher premium than a female with the same health conditions and birth year — as you’re more likely to die at a younger age.

Age

Until someone finds the formula to Ambrosia, the elixir of eternal life, the older you are when you take out a policy — the greater the likelihood your insurer will have to pay your beneficiaries.

As insurance companies don’t want to be in a loss-making situation, the cost of premiums, therefore, increases when you organise insurance at more mature years.

The premium is assessed on your current medical condition. Hence, it’s advisable to obtain life insurance before the lessening of fitness, and the medical conditions that come as part of the ageing process, occur.

Invest in life insurance as early as possible — the younger you are, the more you can enjoy long-term affordable payments.

Employment

Your source of employment can also affect your life insurance premiums — the more hazardous the job, the greater the cost. If you’re a stunt motorcyclist, professional shark wrestler, or police officer — the chances are you face more daily risks than an office-based accountant.

Hobbies

Similarly, how you spend your spare time can impact the affordability of life insurance.

Australians who enjoy skydiving, free climbing, and kiteboarding may pay a supplement on their premium to reflect the inherent risks — something that isn’t as relevant to stamp collectors and greetings card crafters.

Health

One of the most significant factors in life coverage premiums. Unsurprisingly, the healthier you are, the lower the cost you will expect your insurance to be. The majority of insurers either require you to complete a medical questionnaire or examination before your cover is agreed.

Length of Life Insurance

The cost of term life insurance — where the cover lasts for a set amount of time, typically ten, twenty, or 30 years — is influenced by the length of the policy. Furthermore, additions and exclusions to the cover will also affect your premiums.

Insurance is renewed every year and therefore can be cancelled at any time — although many policies will stop at the age of 65 years. Be aware, if you terminate the policy, and then reapply at a later date, you may have to take another medical. This will generally result in higher premiums.

That’s why, at ATB Wealth Strategies, it’s our mission to ensure that you receive the cover you need, not what you don’t — ensuring the most cost-effective safeguarding.

Value of Death Benefit

The final factor that can determine the price of your life insurance is the value of the benefit to be paid in the event of your unfortunate demise.

For example, if you only needed $250,000 for your beneficiary’s immediate expenses, you can expect to pay less than another person who is looking for $2,000,0000 to cover their children’s education, mortgage payments, and spouse’s day-to-day living costs.

To learn more about how does a life insurance policy work out premium costs, contact us now for a chat.

How Does Life Insurance Become Affected If I Tell Untruths?

Based on the above information — it can be tempting to declare to the underwriters that you’re an office-based vegan yoga practitioner who collects vintage coins, has never smoked, and considers alcohol to be completely taboo.

While this may deliver more affordable premiums in the short term, eventually it could create significant issues. If you tell untruths regarding your employment, lifestyle, or health status — you run the high risk of the policy becoming void or failing to payout in the event of a claim.

How do Life Insurance Payouts work

Meaning that not only have your premium payments been wasted — but also leaving loved ones without any benefits. Just tell the truth!

That said, even with serious medical problems or hazardous employment, the price of cover can often be much more affordable than you’d anticipate. Speak to us today regarding your personal situation — and allow us to formulate a cost-effective life insurance plan.

How Does Life Insurance Work When You Die?

When you take out life insurance, tell this to your loved ones, family, beneficiaries, and solicitor. Furthermore, keep copies of your policy documents with your other valuable possessions — so to ensure in the event of your demise, they’re easily accessible.

One of the advantages of having a trusted financial planner is that all your insurance and financial information is documented and available for beneficiaries — making the process much easier and removing worries and concerns at a difficult time.

Conversely, should a family member die, and you cannot readily find evidence of life insurance — but are sure they took out cover — a little detective work may be required. Check their bank statements for direct debit payments to a provider and/or request access to the deceased’s email accounts. Additionally, speak to us at ATB Wealth Strategies and contact the Financial Services Council — who can assist in locating lost policies.

Your beneficiaries, or their representative, can then get in touch with the insurer, together with the policy number and death certificate, to begin the claim process.

How Does Life Insurance Payout?

For many people, the answer to the question of how does life insurance payout work is crucial. If you’ve sensibly taken out cover, you want to ensure that your chosen beneficiaries can effortlessly receive their entitlements — as you’re not around to monitor the process.

Reassuringly, it’s simple — and follows three straightforward steps:

  1. Notify the insurer — provide the policy number, death certificate/deceased’s GP details, and the proposed beneficiaries’ relationship to the demised.
  2. Assessment — the insurer typically provides a form for the prospective beneficiaries to complete, allowing the underwriters to ensure the validity of the claim.
  3. Payout — usually made to the deceased’s representative, next-of-kin, trustee, or will executor.By all means, have a chat with us at ATB Wealth Strategies, and allow us to put your mind at rest regarding the smooth processing and payment process.

By all means, have a chat with us at ATB Wealth Strategies, and allow us to put your mind at rest regarding the smooth processing and payment process.

The Timescale of How Do Life Insurance Payouts Work

According to APRA (Australian Prudential Regulation Authority), 69 percent of life insurance claims are completed within two weeks, with a further 21 percent satisfied within two to eight weeks.

Although unusual, some factors can delay processing payouts, including:

  • Untruths on the policyholder’s original insurance application.
  • Death occurring in a suspicious or unclear way.
  • Fatalities due to murder — especially when the beneficiary is a suspect.
  • Policyholder dying within two years of taking out life insurance.
  • Suicide — not covered by many policies.

However, as demonstrated by the statistics above, the majority of payouts are processed painlessly and without contention. At ATB Wealth, we guarantee on behalf of our clients, to assist and help with payout claims — to ensure their speedy completion.

There are also circumstances where a policy may issue funds early. Most policies include a terminal illness benefit clause — where, depending on the insurer’s guidelines, payment may be issued if you’re declared to have less than 12/24 months to live.

Additionally, an increasing number of insurers offer funeral advancement benefit — a clause that allows for an initial early payment to cover funeral costs and expenses.

Chat with us at ATB Wealth Strategies to learn exactly how does life insurance work in Australia — the payout process, and how we can help you assist your loved ones.

How Do Life Insurance Companies Make Money

As a savvy investor, you’ve probably figured out that your monthly life insurance premiums will not cover the large sum payable in the event of your death. So, how is life insurance profitable for the provider — is it all a scam?

There are many unsubstantiated rumours that insurers make their sizeable profits by doing everything in their power to refuse claims — but it’s untrue. Data from APRA and ASIC (Australian Securities and Investments Commission) demonstrates that over 92 percent of life insurance payouts are successful.

The answer to how does life insurance make money for the insurers is through careful investment and risk analysis:

  • Fraudulent proposals — if a policyholder is found to have lied on their proposal, premiums are forfeited to the insurer with no payout.
  • Term life insurance — the insurance company is effectually betting on you not dying during the time covered by the policy — meaning no payment to the insured, and the insurer keeping the premiums.
  • Strategic investment — third-party, or in-house teams, make carefully thought-out investments in the stock market to create significant gains.
  • Lapsed/lost policies — some life insurances lapse due to policyholders failing/forgetting to make premium payments and deciding not to continue cover. Additionally, beneficiaries are sometimes unaware the deceased had a policy, remaining unclaimed.

To ensure your life insurance policy provides consistent cover and doesn’t lapse, speak to us at ATB Wealth Strategies today.

Life Insurance From ATB Wealth Strategies, Sydney

At ATB Wealth Strategies, we offer compassionate, professional, and targeted life insurance options to meet your specific needs. Working together, we can formulate a comprehensive and affordable plan for the ultimate peace of mind.

Remember, life insurance isn’t just about planning for your financial dependents in the event of your demise — it can also benefit you during your lifetime with terminal illness protection. Other types of policies can also incorporate total or permanent disability, and trauma cover.

Be careful. The life insurance industry isn’t a level playing field — the underwriting is varied, complex, and can adversely affect you or your beneficiaries at the time of a claim. We provide a robust guarantee when formulating your plan — outlining exactly what you will receive if there is a claim, and not leaving you or your beneficiaries disappointed if the policy fails to payout adequately.

Let’s have an informal chat today about your future — allowing us to explain more fully how does life insurance work, and the comforting reassurance it provides to you and your loved ones.