Start your life insurance comparison and find cover to match your needs
Life Insurance provides your financial dependents with a lump sum benefit so they can maintain their current way of life in the event of your death. This payment can cover your mortgage repayments, repayments for other debts such as credit cards and pay for the cost of your funeral. It can also be put towards your family's day to day expenses including food, bills and education.
There are many life insurance providers operating in Australia so it is important to shop around and compare what is available, based on your own needs. Most superannuation funds include life insurance, but these policies provide less cover than a standalone policy. Even though you may be automatically covered within your superannuation fund, that doesn’t mean you shouldn’t check for a better deal. The last thing you want is to be stuck with a plan with an insufficient level of coverage.
finder.com.au is here to help and walk you through the process. We provide you with as much or as little information you need, so that you can make an informed decision.
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What types of life insurance policies are available in Australia?
Term Life Insurance
Term life insurance, also known as death cover, is a type of life insurance that provides coverage for a specified amount of time or term. It provides a lump sum payment to your dependants if you pass away, or an approved medical practitioner has diagnosed you with a terminal illness with less than 12 months to live. Most term life insurance providers allow applicants to insure themselves for terms of 1, 5, 10, 20 or 30 years.
Key features of term life cover
- Terminal illness feature. If the policyholder suffers a terminal illness the insurance company generally pays out 100% of the benefit. This allows the policyholder to cover medical fees for end-of-life care.
- Indexation. The benefit payable and premium payments of the term life insurance policy increases according to the Consumer Price Index (CPI).
- Guaranteed Future Insurability. Provides the policyholder with the option of renewing the life insurance policy at the time of expiration without having to reapply and take further medical underwriting.
- Funeral Advancement Benefit. Allows an advanced payment of the sum insured to help cover immediate funeral expenses in the event of your death.
- Financial Planning Benefit. Allows a benefit to be paid to cover expenses for professional financial advice from a qualified financial adviser in regards to your benefit payment.
- Complimentary Interim Death Cover. Most policies will provide interim accidental death cover from the date the policy application is submitted to when cover is put in place.
- Multi-Plan Discount. Some insurers will provide a premium discount if you have more than one type of cover in place with them.
What to look for when you compare term life insurance policies
In addition to the features discussed above, there are some crucial elements of term life policies to consider when comparing policies:
- Optional cover offered. Many policies offer additional cover for critical illness, TPD and child cover.
- Joint-cover. Most policies give applicants the option to take out a joint policy to provide cover for their spouse. This can result in a premium discount of between 5-10%
- Benefit discounts.There may be discounts available for different levels of cover taken out. This can be as much as 30% for cover over $1 million.
- Minimum and maximum sum-insured.The amount of cover that can be taken out can vary greatly between providers and is often dependent on the applicant's occupation and age. This is a key consideration for high-income earners with some insurers offering policies specifically designed for people with higher earners looking to insure greater sums.
- Minimum and maximum entry age. Most policies will provide cover for people to a maximum age between 65-75
- Premium structure. Applicants will have the option of stepped or level premiums though some providers will also offer blended premiums.
- Premium payment frequency. Applicants will usually have the option for monthly, fortnightly, every 6 months or annual frequency payments. Insurers will usually apply a charge for more frequent repayments. As an example, AIA will apply an 8% premium loading for monthly repayments.
- Cooling off period. This is the amount of time that applicants cancel their policy after it being put in force. This is usually between 28-32 days.
- Policy exclusions. Exclusions may vary between different life cover options. Generally suicide within the first 13 months of the policy being active is applied.
Conditions for when the policy will end. This may vary between policies but will generally be:
- Upon payment of the benefit
- Upon death of the policy owner
- The expiry date of the policy
- When the benefit is cancelled
- When premiums are not paid and there is a lapse in the benefit
- Date of conversion that is permitted
Income Protection Insurance
Income protection insurance provides a monthly benefit payment of up to 75% of your regular income, if you are unable to work in the event of an illness or injury. This allows the insured to keep up with daily expenses such as groceries, bills, debts, rent or mortgage. Policies can also contain certain benefits that provides policyholders with payment to cover costs associated with rehabilitation and nursing care.
An income protection insurance policy can be tailored to suit your needs. You are able to adjust and customise the following features of your death cover:
- Benefit period. For how long do you want a monthly benefit to be paid in the circumstance of injury or illness? The longer you want to be paid, the more expensive you Income protection premiums will cost.
- Waiting period. How long are you willing to wait from the time of injury or illness, until the first Income protection payment? One month? One year? Perhaps you will need a supplement income straight away? The longer you are willing to wait, the cheaper your Income protection premiums will be.
- Agreed Vs Indemnity Value. The agreed value policy bases the monthly benefit on your income at the time of application. It is generally more expensive than the Indemnity value policy, which assesses your circumstances at the time of claim.
Key benefits of income protection
- Increasing Claims Benefit. Ensures that your benefit amount increases each year in line with the CPI. This allows the policyholder to keep up with the rise in the cost of living.
- Guaranteed Future Insurability. Guarantees to increase your benefit payment in line with increases in your salary.
- Day one Accident Cover. The waiting period will be waived if your disability was the result of an accident.
- Home and Family Care. The insurer will pay for the cost of a full time carer or a supplement income for a family member if they are required to take care of you on a full time basis.
- Rehabilitation Incentive. Will help to pay for the costs of rehabilitation care.
- Bed Confinement. Will waive the waiting period and pay benefits immediately if you are confined to a hospital bed.
- Travel and Accommodation Assistance. Pays for accommodation and travel for family members who need to visit you if you are sick or injured away from home.
- Maximum monthly benefit.What is the maximum income bracket that the provider is willing to offer cover for? Similar to life cover, this is a key consideration for high-income earners
- Maximum entry age. While most insurers provide cover to people under the age of 65, some insurers allow cover to remain in place until the age of 70 with certain conditions. Generally cover is provided to age 65
- Offset clauses.How is the payout reduced if eligible to receive other income such as:
- Centrelink payments
- Workers compensation
- Sick leave
- Definition of disablement. This is one of the most critical components of an income protection policy as definitions for disablement will differ greatly. This can be hours, income, duties based or a combination
- Cover more than 75%. Some insurers will allow providers to receive more than 75% than their regular income if the additional amount is contributed to their superannuation
- Exclusions. With so much variance in reasons for income protection claims, there will often be a number of exclusions on when a benefit is paid. These can include:
- Disablement as a result of self-inflicted injury
- Disablement resulting from policy owners involvement in the armed forces
- For normal pregnancy or uncomplicated miscarriage
- Conditions for different occupations. It is essential to be clear on the conditions of the policy benefits and features in relation to your occupation
- Additional cover lump-sum payment. Most income policies will offer a lump sum-benefit payment for death, critical illness or TPD. This amount can vary greatly between insurers so it is worth comparing what is on offer
- Cancellation of policy.Review the conditions that are in place for how a policy can be cancelled, both by the policy owner and insurer
Total and Permanent Disability (TPD) Insurance
Total and permanent disability insurance, also know in short as TPD, provides a lump sum payment if you are totally and permanently disabled and unable to return to work. TPD Insurance is designed to cover the costs of medical expenses and rehabilitation costs, reduction of debt, ongoing living expenses and modifications to home and vehicles if necessary for the disability.
Typical definitions of totally and permanently disabled include:
- Loss of two eyes, arms or legs
- Being away from work for more than 6 months due to illness or injury, without the expectation of being able to work again.
Disability definitions in TPD may affect the result of your claim.
- Any occupation. Inability to perform any job that is related or unrelated to your field of study due to an illness or injury.
- Own occupation. Inability to perform the job you are employed in and have received training in due to an illness or injury.
- Home-maker occupation. Inability to perform domestic duties due to illness or injury.
Key benefits of total and permanent disability insurance
- Death Benefit. Given that TPD cover is a stand-alone policy, a benefit may be payable in the event of your death.
- Partial Disability Benefit. Part of your TPD insurance may be payable in the event of permanent loss of the use of sight in one eye, one leg, or one arm.
- Guaranteed Future Insurability. Increase your cover with any major changes in your life situation such as buying a house, having children or getting married. You will not need to take further medical examinations, even if your health has changed.
- Indexation benefit. Sum insured will increase annually in line with the Consumer Price Index (CPI).
Tax treatment of TPD insurance
TPD insurance benefit payments are tax-free. However, the premiums you pay for TPD insurance is not tax-deductible.
What to look for when you compare TPD Policies
In addition to feature mentioned above, it is also worth checking out the following points when comparing policies:
- Own Occupation and Any Occupation Definition. Not all policies will offer both own occupation and any occupation coverage and conditions for benefit payment can vary greatly between insurers. Own Occupation TPD Insurance is no longer available through superannuation.
- Availability of Buy Back Benefit. If the policy is linked to a life cover policy and a benefit payment is paid for TPD, the sum-insured for life cover will be reduced. Buy back enables policy owners to repurchase the sum-insured 12 months after the claim has been paid.
- Expiry age. Most insurers will not provide cover for TPD beyond age 65. Some will provide cover for certain occupations to age 70.
- Definition of Daily Acts of Living. TPD will generally provide if the policy owner is unable to do two of the daily acts of living such as feeding, bathing, dressing and looking after yourself. It is worth finding out how this is defined.
- Waiting period. The waiting period is the period the policy owner will have to wait before a benefit payment is provided. This can vary anywhere from 5 consecutive days up to two years.
Trauma insurance provides a lump sum payment if diagnosed with a specified life-threatening illness or a traumatic injury. The purpose of Trauma insurance is to cover:
- Rehabilitation costs and lifestyle changes
- Home modifications
- Daily living expenses
- Recovery holiday/time off work
Up to 50 different trauma events can be covered under trauma insurance and what is covered will vary between different insurers so it is important to check and compare. The most common illnesses and diseases that are covered are cancer, heart attacks, stroke and brain tumours. Trauma insurance is generally more expensive than other forms of life insurance, because of the higher chance of a policyholder being diagnosed with one of these illnesses.
Key benefits that may be available on trauma policies
- Trauma Benefit. Lump sum benefit paid to the insured person if they experience a listed trauma condition or undergoes a certain medical procedure listed by the insurance company.
- Guaranteed Future Insurability Benefit. Policy owner can increase the coverage amount every policy anniversary without having to provide any further medical underwriting.
- Indexation Feature. Sum insured will increase each year by the percentage increase in the CPI.
- Waiver of Premium. Premiums are waived if the insured person becomes totally disabled.
- Accommodation Benefit. Benefits can be claimed on accommodation expenses incurred by immediate family members who are visiting the insured person away from their usual residence.
- Financial Planning Benefit. Insurance company will reimburse expenses for financial advice from a qualified financial planner after a successful claim is made.
Tax treatment of Trauma Insurance
Any benefit payouts from trauma insurance are generally tax-free, however trauma insurance premiums are not tax-deductible.
What to look for when you compare Trauma Policies
Some key elements to consider when choosing between different types of trauma cover include:
- Range of conditions covered. The conditions covered under trauma policies can vary greatly from provider to provider with some insurers covering up to 50 different conditions.
- Preexisting conditions. Preexisting conditions play a major role in insurance underwriters assessment of people taking out Trauma cover. It is important to gain a clear understanding on how any conditions you may have will be treated.
- Buy back benefit. Similar to TPD insurance, if the trauma cover is linked to a life insurance policy, Buy back benefit will ensure the life cover sum-insured can be repurchased following a trauma claim.
- Availability of Child Cover. Many policies will allow policy owners to insure their children to a maximum sum for trauma conditions. This cover can usually be converted to an adult policy once the child reaches 21 years of age.
How does life insurance and super actually work?
The life insurance policy included with your superannuation fund usually offers simple default insurance options because you are automatically enrolled when you join the fund, and the premium amount is deducted from your super account.
Super fund life insurance policies generally cover you for death, as well as total and permanent disability cover. You are not generally required to complete a health check due to an automatic application.
Your super fund insurance premiums are paid from your pre-tax income, however, only financially dependent beneficiaries such as your partner and underage children will receive the death cover benefit tax free. If you are naming beneficiaries such as adult children, tax may be taken away from the insurance payout. The super fund trustee will ultimately decide who receives the benefit and while you can nominate beneficiaries, not all super funds will allow you to make this nomination binding.
How Does Life Insurance Funded through Superannuation Compare to Standalone Life Insurance?
Should I purchase insurance direct or with the help of an adviser?
A growing number of Australians are now deciding to purchase their life insurance or income protection direct through the provider as oppose to going through an insurance consultant. There are both benefits and disadvantages to both methods and the decision on which road to take will really come down to the applicants own preferences.
|The good of buying direct||The not so good|
How much life insurance do I actually need?
Use finder.com.au's Life Insurance Calculator for an approximation of the amount of coverage that you need.
In general, income protection insurance can only insure up to 75% of your salary to help you keep up with daily living expenses when you are unable to work. Additional coverage can be added to the 75% however, it must be contributed to your superannuation fund in the event of a payment. Consider the costs involved for you to meet payments for mortgages or rent, bills, debts, maintain a lifestyle and provide for your dependants. If the total amount of your expenses are well below the monthly payout, you have the option to reduce your cover. This way, you are covered only for what is needed and you can reduce your premium.Use finder.com.au’s Income Protection Calculator for an approximation of the amount of Income protection coverage that you will require.
How much will I pay?
The premiums for life insurance policies are based on a range of factors.
- Age. Premiums can increase or decrease as you get older.
- Gender. Women typically live longer than men and so pay lower premiums.
- Smoker. Smoking is a key risk indicator for insurers. Smokers can expect to pay as much as double in premiums compared to a non-smoker.
- Occupation. Some occupations are considered to carry a higher level of risk than others causing an increase in the premium payable. For example a construction worker may pay higher premiums than an office worker.
- Pre-existing health conditions. Health conditions that you have may have an affect on the amount of premium that you pay.
- Genetics. A life insurance provider may ask for genetic information or results from genetic tests which includes your family history. This may give the insurer some idea on the chance of the applicant developing some sort of disease or condition.
- Stepped Vs Level Premiums (Specific to Life Insurance). Stepped value premiums means that your premiums increase over time, whereas Level premiums mean that you premium payments remain constant over the term. Stepped value premiums are usually cheaper than level premiums in the beginning but they then exceed level premiums as time goes by.
- Agreed Vs Indemnity Value (Specific to Income Protection). The agreed value policy uses the income at the time of application, so the monthly benefit is locked in based on this amount. The indemnity value policy assesses your circumstances at the time of claim.
- Benefit period and Waiting period (Specific to Income Protection). Your choices on the waiting period and benefit period that you agree on at the start of the contract will affect the premiums that you pay.
How do I actually compare quotes?
It is all well and good to receive quotes on a range of different policy options but what else should you be considering when weighing up different policy options?
- Price. Does the estimated premium reflect the value that the policy provides?
- Bundling options. Is it possible to get more comprehensive cover through linking in TPD or trauma cover? How will this impact the price?
- Family cover options. Does the policy offer child cover or joint policy options?
- Exclusions. Read through the exclusions in the product disclosure statement to learn what events the insurer will not provide a benefit payment for
- Benefits and features. Find out what benefits and features are built-in and available at an additional cost. Important to consider what is really needed for your situation
- Additional fees and charges. What fees may be applicable to establish the policy? This may include stamp duty and annual policy fee
- Provider. Is the provider a recognised insurer with financial solidarity? It can be worth reading up on the insurer and reviewing their claims process
- Policy flexibility. How easy is it to adjust the cover once the policy is in force and will this result in a charge?
Key questions to ask before signing on the dotted line...
What is covered?
Make sure you have a clear understanding of the illnesses and events you are covered for and if you will receive a benefit for death by accidental causes. It is important to note that most policies will not cover suicide within the first 13 months of policy application.
How much will I get paid when I claim?
Clarify how much you will be paid as well as the conditions of payment, for example, will the claim be paid if you are diagnosed with a terminal illness? Make sure you have a clear understanding of the companies claim and payment process.
What will my premiums be?
Knowing how much you will be paying now and into the future allows you to budget, as well as decide whether a level premium or a stepped premium is better for you depending on your age, occupation and how your financial circumstances are likely to change in the future.
How can the cover amount be increased?
If your circumstances do change and you feel you need a higher amount of cover because you have taken on a larger mortgage or started a family, it might be time to upgrade your cover amount to ensure adequate protection is in place.
What are the exclusions in my policy?
Make sure you understand all of the exclusions of the policy and if there are any optional benefits worth considering for your situation.
Can I switch or transfer my policies to a different provider in the future?
If you already have a life insurance policy and you want to switch to a new provider, you may not need to undergo another health check if your old insurer assessed your health within the last five years. Also make sure you cancel your old insurance policy only after your new policy has been accepted.
What will happen if I cannot pay my premiums?
Find out the insurers policies on what happens if you cannot pay a premium payment. Will they cancel your cover straight away? Do they give you some time to pay them back?
How much coverage do I need?
You may have done the calculation for the coverage amount you need, but it’s always wise to double check with your insurer if the amount is sufficient.
Will my premiums increase as I get older?
You may have the choice between a Stepped premium policy or a Level premium policy. As stated before, it is important to consider your own situation when deciding what is most appropriate for you.
Will I need to take a medical exam?
In most cases, you will need to take a medical exam, however some policies do not require this. The policies that do not require a medical exam are generally more expensive.
Is my policy renewable?
Many life insurance policies have the option for you to renew the policy without extra consideration such as another medical examination.
Does the benefit amount adjust for inflation?
Some insurance providers may charge a fee to adjust your benefit to account for inflation. You payment could differ by a huge amount if it is not adjusted for inflation.