Free life insurance sounds too good to be true, but is it?
If you’re shopping for life insurance you may have come across special offers advertising “free cover” or even “free life insurance”. While there are significant savings to be found in some cases, there are also a few traps and pitfalls to watch out for. Free rarely ever means free.
Let’s take a closer look at the pros and cons of free life insurance offers.
Can I really get free life insurance?
There are a few common discounts or benefits that insurers label as "free" life insurance. These are the most common ones.
|Free cover (limited period)||Many insurance funds offer free life insurance for a limited amount of time. For example, a life insurance policy where the first month's cover is free.|
|Adding children to a policy||Some insurance policies allow you to add a dependent child to your existing policy for no extra charge. This allows you to increase the level of insurance protection for your family at no extra cost.|
|Bundled policies||By bundling two cover options together you can get two policies for the price of one. For example, your death cover policy includes a specific amount of cover for total and permanent disability (TPD). Often this only seems like a free benefit, since you'll probably pay more in premiums. But it can represent a good discount.|
There is nothing bad about saving money through any of these discounts. Just remember to dig deeper into the policy details to make sure you're getting value for money and the life cover you need.
Policies with free cover in the first month
Life insurers regularly offer the first month’s cover for free as an enticement to new customers. Taking advantage of this type of offer can be an easy way to save money. One month of free cover could make an important difference to your monthly budget, so it’s certainly worth considering if you’re looking for ways to reduce costs.
But don't get taken in by an upfront discount alone. It’s important to examine the other features of the policy. How much will it cost you for the rest of the year? Does it provide enough cover for you and your family? Does one free month outweigh the risk associated with purchasing low-quality cover?
You should only take out cover with an insurer that offers the first month free if you’re satisfied that the policy is affordable and offers a sufficient level of cover for your needs.
Many insurers listed on finder.com.au offer policies that allow you to enjoy one month of cover for free, including:
- Zurich Ezicover Life Insurance
- American Express Term Life Insurance
- NobleOak Term Life Insurance
- Real Family Life Insurance (offers a 10% refund of premiums paid in the first 12 months)
Adding children for free
Some life insurance policies allow you to include your children on your policy for no extra cost. This type of policy pays a lump sum benefit in the event that your child dies, is diagnosed with a terminal illness or suffers a specified traumatic condition. It’s an easy way to increase the level of protection in place for your family, but there are a few key issues to consider when choosing a policy:
- Child benefit amounts vary between insurers, with some only offering up to $50,000 of cover and others offering up to $500,000 of cover.
- Age limits apply, with some insurers covering kids up to the age of 14 and others providing cover until your child turns 18.
- You’ll need to examine the features of the policy as a whole before deciding whether it’s right for you.
It may not be free, but taking out life insurance through your superannuation fund can be an affordable way to take out cover. Most super funds offer three types of life insurance to members – death cover, total and permanent disablement cover and income protection cover – and all must provide a minimum level of cover.
While not free (you still have to pay for cover) the premiums are deducted from your super account balance so they won’t have any effect on your hip pocket.
Learn more about getting life insurance through your super fund here.
What are the drawbacks of free life insurance?
Before taking up a free life insurance offer there are a few things to look out for:
- Free policies often have limited cover. As a general rule of thumb, if a deal sounds too good to be true then it probably is. While the offer of free life insurance can seem very attractive, the cover provided by these policies is often limited. Read the Product Disclosure Statement (PDS) closely for a clear picture of how much cover the policy provides.
- You might not get cover for the things you really need. If you’re lured in by a free life insurance promo, you might forget to check whether a policy is actually a good fit for you. Remember to check the PDS for detailed information on what is and isn’t covered by the policy.
- If your situation changes, your free policy may leave you underinsured. Your circumstances (and therefore your cover needs) can change. You could get married or divorced, get promoted or sacked, or even start a family. If you don’t update your cover to match your personal circumstances, your free life insurance policy may not offer a sufficient level of cover for you and your loved ones.
- There may be hidden costs. Before signing up to any free life insurance offer, make sure there aren’t any hidden fees and charges attached to the policy. For example, while you may get one month’s free cover, your policy may cost extra if you choose to pay your premiums by the month instead of annually.
- Always consider your own needs. The cost should only be one factor you look at when choosing a life insurance policy. It’s vital to make sure that any policy you do choose matches your cover needs and offers the right protection for you and your family.
Should I just go with a free or cheap life insurance policy?
The entire purpose of life insurance is to protect your family members in the event that you pass away or suffer a crippling illness or injury. If a cheap or free life insurance policy won't cover you for your specific needs or will leave you underinsured when the worst happens then what's the point of having it?
When shopping for a life insurance policy you need to balance cost with many other considerations.
- Cover needs. You need to know how much life insurance cover your family needs. Consider the number and age of your children (how long until they will be old enough to support themselves?), your financial situation and your partner's ability to support your family financially.
- Debts and expenses. If the worst happened tomorrow, what debts would you leave behind? What kind of ongoing financial commitments would your family have to keep paying? Factor in mortgage debt, education costs, funeral costs and other major expenses.
- Types of cover. Look at the options available in the policy and consider whether you need income protection, TPD or trauma cover and whether it's worth bundling them with a life insurance policy.
- Changes in circumstances. As your life changes you'll need to re-evaluate your life insurance needs. Think about if you'll have more children in the future, move to a bigger house or take on greater debt. Changes in occupation or income can also affect your insurance needs.
Learn how to save on life insurance without leaving yourself exposed here.
Deals and special offers
The life insurance industry in Australia is highly competitive and insurers are always looking for ways to increase their market share. One of the ways they try to entice new customers is through one-off promotions and special offers.
Sometimes these offers include deals that provide the first year of cover for no charge. These promotions can help you enjoy significant savings on the cost of life insurance, so keeping an eye out for them may be well worth it.