Life insurance example

What is unique about life insurance cover is that a lump sum payment is made rather than a reimbursement for the specified costs actually incurred. So the payment can be used to reduce or eliminate debts, such as home mortgages, provide for family living expenses, child care expenses or funeral costs.

It may help to illustrate this with an example.

You have a partner and three young children. You're in paid employment but your partner isn't. It costs you $40,000 each year to provide for your family.

In addition, you have a mortgage of $300,000. If you were to die without any life insurance cover, your partner and children would be in a challenging situation. Your partner may have to sell the family home and/or find a job – which may be difficult with three young children. Life insurance may be of great value in this situation.