Should I cancel my life insurance to cut costs?

Financial expert Adrian Raftery answers the question a lot of families are debating.

More than 60 per cent of Australians are under insured. The majority of our nation's population don't have enough cover should the unforeseen happen.
When I met Antoinette and Ian Greig, they said they had considered cutting out their life insurance cover. I gave them an emphatic "No". If ever a family needed personal insurance cover, it was them.
They have four kids aged 5 to 14 — Timothy, Renee, Samuel and Leisa — and a mortgage in excess of $350,000. Ian is the sole breadwinner and works in the construction industry. The only cover they had was life insurance of $200,000 for Ian.
"What would happen if Ian was run over by a bus tomorrow?"

Why do Australians not have life insurance?

The major reasons for under insurance in this country are the perceived cost — "I'm covered by workers comp already" — and a "she'll be right" mentality. Ian and Antoinette were no different.
I posed a simple question — "What would happen if Ian was run over by a bus tomorrow?" After all, the majority of deaths and accidents occur away from the workplace.
Their answer was simple. Antoinette would have to sell the family home.
I suggested that the basic cover they need to consider is the mortgage plus an amount that will provide an income to perpetuity. As the household needs approximately $30,000 per annum, then, based on an 8 per cent return, they need an additional $375,000 (together with the $350,000 for the mortgage) in life cover.
It is also vital that Ian covers his income. People tend to cover their house, car and contents, but not the most important reason for these assets. Income protection insurance is basically a 24-hour cover for 75 per cent of your income up to age 65.
I then asked what would happen if Antoinette was run over by a bus. Ian would have to reduce his work hours to care for the kids, meaning a lower income. They agreed Antoinette should be covered, too.
To get more adequate cover, the extra premium after tax was just under $75 per week. This means they will sacrifice pay TV in order to help secure the family's finances.
People tend to cover their house, car and contents, but not the most important reason for these assets.

Adrian's top 8 life insurance tips

1.Make it a priority in the budget. Insurance should always be one of the first items in any family budget — not one of the last. No exception.
2.Think about your last gasp of air. When thinking about insurance cover, think about your family not being financially protected when you die.
3.People do get run over by buses. It's never planned, but people do die unexpectedly. Cover the worst case scenario.
4.Don't lie in applications. Lying to the underwriter at application may jeopardise your payout when you need it most.
5.Cover the mortgage … and a little but more. The basic cover every Australian should have is their mortgage. Also think about schooling, child care, lost income and household costs.
6.Protect your income. What would happen if you couldn't work for a few months? Do you have enough of a buffer to cover your mortgage repayments? And don't forget that income protection cover is tax-deductible.7.Get your superannuation to pay for it. To help with your cash flow, arrange for your super fund to pay for your life insurance coverage.
8.Check the terms and conditions. If you are unclear, get expert advice and talk to a licenced financial adviser or life insurance broker.

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