Life insurance

A clear general framework is to add up your debts (mortgage and other loans), the income your family would need to replace for a chosen number of years, future costs such as children's education and ongoing living expenses, and final expenses, then subtract existing savings, assets and any cover already held in super. The remainder is a guide to the cover you might consider. The right number is personal, so it is worth working through for your situation.

It depends on the structure. A lump sum life (death) benefit from a policy held personally outside super is generally paid tax-free to the beneficiary. Once super is involved it changes: a benefit paid through super to a tax dependant such as a spouse or minor child is generally received tax-free, while a benefit paid to a non-dependant, such as a financially independent adult child, can be taxed on part of the payment. This is general information only, and your own outcome depends on your circumstances, so confirm it with tax or financial advice or the ATO and Moneysmart.

Life insurance pays on death, and on most policies also on diagnosis of a terminal illness with a limited life expectancy, so an advanced terminal cancer can trigger a life cover benefit. A cancer that is serious but survivable would not generally meet that terminal illness definition. The product designed to pay a lump sum on diagnosis of cancer, regardless of prognosis, is trauma or critical illness cover, and many people hold the two alongside each other. Definitions vary by policy, so the wording is what matters.

That depends on your circumstances, and we cannot give personal advice here. As a general guide, life cover matters most where other people depend on your income, or you carry debts such as a mortgage that would otherwise pass to your family. If nobody relies on your income and you have no debts that would fall to others, the case for a large death benefit is often weaker. For many working households with a mortgage and dependants, it is the safety net that keeps the family financially stable if the worst happens.

Both can work. Cover inside super is convenient, often automatic, and does not hit your cash flow, but it erodes your retirement balance, is frequently more basic, and a death benefit can be taxed depending on who receives it. Cover outside super is underwritten and paid by you directly, but it can be tailored to the amount and features you want, and proceeds generally pass tax-free to a beneficiary. The right structure depends on your needs, tax position and retirement plans, which is worth working through with an adviser.

It varies by insurer and by how the claim is held. A straightforward claim on a policy held outside super, with documentation in order, can be paid relatively quickly. Cover held inside super can take longer, because the trustee directs the benefit according to your nomination and the fund's rules. Clear, valid beneficiary nominations and complete documentation help a claim move smoothly.