Question Detail: Hello I am looking for first to die insurance in Australia (say $1.5m). There is no need for my partner and I to both have insurance as we do not have kids/dependants. We both work and only need a single payout if the other is not around. As such two lots of insurance does not make sense. if not available in Australia, can I source offshore? Thanks
Jason - Bondi, NSW
Top answer provided by:
Hi Jason, thank you for your question. Insurance is something which is on a lot of people’s minds at the moment, in particular exactly how much cover they require. In regards to Life insurance, at first it may seem like there is a rule of thumb which everyone can follow, however there are a number of issues which need to be taken into account.
Most people have a financial plan, or future-self which they work towards; the reason they get up and go to work each day. These financial and lifestyle goals of course, rely on a simple assumption; your income continuing. The death of a spouse can have a serious impact on that outcome, life insurance is the tool we use to protect those dreams and aspirations. Some factors which need to be taken into account are:
- Any debt obligations
- Loss of income
- Final expenses including funeral and medical costs
- Potential tax liabilities
- Potential impact loss of retirement savings
There are several key considerations which I find are often overlooked, by those who believe their situation is simple. Health is a major factor which you should consider regarding life insurance. Whilst relatively easy to get when you are young and healthy, things can become difficult if your health deteriorates. Things can get tricky, as predicting future health problems are impossible. One thing to consider is the longevity of your immediate family including known health issues which run in your family. The unpredictability of health is one of the key reasons, I generally recommend individual policies. Your need for insurance can change quickly, and it is important to take everything into account before committing to an insurance policy. Life insurance is not something you can shop around year to year. Some other considerations include:
- Future debt obligations, and whether there may be a need to increase cover in the future,
- Potential future financial dependents, including children or elderly family members with ailing health.
Now that we have discussed the levels of cover, the structure of the life policy is the next consideration. There are a number of structures which have been available in the insurance market historically:
- Term life cover
- Whole of life
- Unitised cover
Whilst whole of life policy’s have all but disappeared from the Australian market, term life and unitised cover is the primary life insurance used in Australia. Getting to your question regarding ‘First to Die’ insurance, the simple answer is they are not available in Australia. These policies are somewhat popular overseas, and involve both spouses, owning a single policy on both of their lives. The conditions of the policy generally pay a benefit on the death of one of the insured lives. Whilst this may appear simple on face value, problems can arise down the track with joint ownership.
- Life events such as divorce, can cause problems with both parties being the owner, with no way to split the policy later. Under joint ownership both parties must also agree to the beneficiary nomination.
- Both partners may not require the same level of cover, in which case one party could potentially be over insured.
- Loss of capacity may also become an issue, especially in the absence of continuing power of attorney.
Insurance contracts offshore differ country to country, and there is no international standard in this regard. Generally speaking, most insurance companies globally require you to be at least on a long-term working visa, or permanent resident to apply for life insurance. I would suggest proceeding with caution, as foreign insurance contracts would most likely fall under the jurisdiction of the issuing country, which means you would not have the same legal protections you are used to in Australia.
To summarise the above, life insurance is more complicated than it seems, and there is no substitute to a comprehensive review of your needs by a financial planner. Although the ‘First to Die” policy may seem appealing, you may find a correctly structured life policy, could be easier to manage as well as more cost efficient in the long term.
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