Life insurance is an often misunderstood term.  Most people relate this to insurance that pays out in the event of death - which is correct.  However, there is a broader meaning to the term which, in a nutshell, covers the following insurances:

• Death/Life Cover - as noted above, this pays out a benefit in the event of the insured's death.
• Total & Permanent Disability (TPD) - This cover provides a benefit in the event of the insured being sick or injured to the extent that they will never be able to work again.
• Trauma/Critical Illness Cover - this cover provides a benefit in the event the life insured is diagnosed with a specified medical condition.  It covers the big stuff like cancer, stroke, heart attack along with a whole range of other conditions.
• Income Protection - this cover provides a replacement income in the event the life insured is unable to work for a period of time due to injury/illness.

There are many variations and definitions for the above insurances, as well as a few other covers and benefits that fall under the 'life insurance' banner. 

In divorce matters, lawyers will generally consider any existing insurances as part of the property settlement.  At times, it is important to agree on who should own the cover post-settlement as existing cover may be owned jointly or by either spouse.  Problems may arise where an ex-spouse retains ownership of a policy on your life as you may not be in a position to replace that cover - leaving you exposed to risk.

In addition to any consideration of pre-settlement issues there are also post-settlement considerations.  After all, there are significant changes to your financial situation that may impact the levels and types of cover you need.

Some points to consider when evaluating your new life insurance needs:

1.       You may now have more or less debt than in the past and you may be solely responsible for debts that were previously shared.  It is critical to ensure this does not expose you or your family to unnecessary risk in the event of your death or disability.  In the event of a reduction in debt, you may find that insurances that were taken out to cover this debt may be reduced or cancelled.

2.       If you are working then your income may be more important now than in the past.  What would happen if you could no longer work?  In the past, you may have been able to rely on income from your spouse in this situation.  You need to re-evaluate this in light of your changed circumstances.

3.       Your superannuation benefits may change in the event of a superannuation split.  People often rely on superannuation benefits in the event of Death or TPD.  However, superannuation balances are generally not available in the event of temporary disability or critical illness (unless another condition of release is realised).

4.       Accessible assets may have changed.  Again, any changes to the level of assets that are readily available in the event of an emergency may impact on life insurances.  This is particularly the case when funds are locked up in real property and superannuation.  You may not be able to access these funds in the event of sickness or injury.

The first thing you should do is determine what levels of cover (if any) you need.  Once this is established, you can readily determine whether or not you already have adequate cover in place.  You should retain any existing cover that helps to fill these needs.

Whatever you do, don't wait for something to go wrong and then try to put cover in place.  Insurers ask about your medical history so they'll be inclined to decline any insurance where there are significant pre-existing health problems.  If you have significant health issues or do not qualify for new insurance for other reasons (such as age) then you should give serious consideration to retaining any existing insurances.

There is of course the issue of affordability.  Sometimes the ideal level of cover is simply not within your budget to achieve.  Working with a qualified Financial Adviser will help to identify the types and levels of cover you need and determine how best to structure these to maximise tax deductibility and affordability.  Ultimately, you need peace of mind in knowing you are protecting yourself and your family.

Infocus Securities Australia Pty Ltd ABN 47 097 797 049 AFSL No. 236523 trading as Infocus Money Management

The information in this article has been prepared without taking into account any individual's objectives, financial situation or needs.  As such, you should consider the appropriateness of the advice and information contained in this article in the light of your own objectives, financial situation or needs and you should seek your own personal advice which has been tailored to your own individual circumstances from a financial planning expert before acting on the advice or information.