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Why it pays to get life insurance in your 30s

For many young Australians insurance is one of those things that is pretty low on the to-do list — something for their future self to worry about.

But what they may not realise is that life insurance is not just for oldies, but relevant for Aussies at all life stages, especially those of working age with ambitions for the future.

Sean McCormack, Chief of Group and Retail Partners at MLC Life Insurance, recently shared his thoughts on the subject with Business Insider Australia.

“When you think about your life and the things you want to do in life, whatever goals you might have — it could be saving up for a house, it could be going on an overseas holiday, it could be putting the kids through school, it could be none of that — whatever goals you have, your ability to achieve those goals is fundamentally based on one thing, and that’s your ability to earn an income,” McCormack said.

If that is taken away from you, through sickness, illness, accident, or worse, death, then you’re not going to be able to do all of those things that you might like to do over your life. It’s a fragile thing.

Insurance provides protection for your current or future family, but also peace of mind, McCormack said, helping you sleep that bit easier in a stressful and busy world.

“I’ve seen in my job, the darkness that can occur for Australians, when insurance is not put in place, when they’re forced to be reliant upon either family or the public purse in order to survive, when for a relatively modest outlay, they could protect themselves and ensure that their goals are essentially bulletproof,” he added.

They also might not realise that there are major upsides to locking in cover sooner rather than later.

“The benefits of locking in your income protection or your life insurance cover, or even a trauma or critical illness policy — which will cover heart attack, stroke and cancer amongst a range of other conditions — is that you can lock it in at a relatively lower premium.”

That’s because there are two main ways that insurers charge for insurance.

The first is a “stepped premium”, which sees the amount you pay go up as you age due to the increased risk of poor health and likelihood of a claim. The second is a “level premium”, which means that the rate a policyholder pays won’t go up just for ageing.

Stepped premiums start to get a lot heftier around age 40 to 50, McCormack explained, so savvy Australians in their 20s or 30s can lock in a decent level premium, before the rates rise.

“You’d pay a little bit more in the first few years and then if you hold it for the long term, you’ll be significantly ahead,” McCormack said.

The competitive advantages of getting insurance cover early in life can be maximised even more if you see a financial adviser.

While you can go directly to an insurer, or do a comparison via a comparison site, to purchase a policy, an expert adviser can make a massive difference.

In fact, MLC Life Insurance paid out $1 billion in claims to policyholders in 2018, and McCormack said financial advisers were “critical” to ensuring customers got those payouts in a timely manner.

According to recent reporting from the Australian Prudential Regulation Authority into claims handling, customers who purchased insurance through a financial adviser had a higher claims admittance rate than those who purchased insurance elsewhere.

“An adviser can help you work out the most tax-effective way to purchase your life insurance, whether the insurance that often comes as default with your super fund is worth holding on to and whether a stepped or level premium will be better for you,” McCormack said.

And, if anything ever did go wrong, they would also be your courtside advocate helping ensure that your insurer handles the claim appropriately.

With major savings to be made over a lifetime — and the potential offer of a better night’s sleep on the table — it might be time to brush up that to-do list.

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