OK, first the scary bit. According to the industry's Lifewise national education campaign the average life-insurance payout is $91,000, but the average family with young children has debts totalling $167,000.
It puts the average payout for total and permanent disablement at $71,000, and this is in circumstances where the policyholder is unlikely to ever work again. The average payout for trauma (or critical illness) insurance is more realistic at $155,000.
There's more: Insurer AXA's 2009 Protection Report found just 16 per cent of Australians saw a risk of being in a serious car accident and only 25 per cent expected to suffer a serious illness. But more than 1600 people die on the roads a year and one out of three men and one out of four women will be diagnosed with cancer.
Fair enough. But, suitably informed, fear shouldn't be the basis for any financial decision, even insurance. So here's 5 questions to ask yourself when you look at your insurance needs:
1. How much risk can you afford to cover yourself? What savings and personal resources do you have? Would you accept a lower standard of living if life dealt you a bad card?
(Advisers seem to think we all need $100,000 a year to survive and couldn't possibly downsize.) Go to an insurer to cover the surplus risk you can't cover yourself.
2. What's the risk anyway? If you're young, healthy, with no kids and manageable debt you may not need life insurance -- and you've probably got some with your super anyway. Later in life, if you've paid off your mortgage and the kids have moved out perhaps it's time to cut back or drop your life insurance.
3. Precisely what are you buying? Read the product disclosure statement inside out. There's no point paying for a policy that won't give you want you want anyway, or will be difficult to claim against because of the fine print. Nor do you want a policy that gives you more than you need. Find a policy that fits. That said, life insurance is one of the more straightforward ones.
4. Should I fill in all those medical forms or just go for "automatic acceptance". Underwriting, as that's known, is a pain, but you might (and it's only a maybe) get a cheaper policy out of it because you're a better than average risk. Underwriting should mean there's less room for argument later, too, should you have to claim. By the same token, be aware you might end up with a 'loading' because of your medical history and perceived risk.
5. How would the money be paid out? Sometimes a payout can get caught up in red tape, so it might be better to have your partner "own" the policy on your life. (Gloomy, but realistic).
Finally, some people are pretty cynical about insurance companies but there's usually not too many arguments over whether someone died or not. And the fact is that the industry does pay out an average of 80 cents of every dollar it collects in premiums.
Just make sure you're making an informed decision, not one based on fear.
