What is guaranteed life insurance?
Guaranteed life insurance is a common term used on permanent life insurance policies, such as universal and whole life insurance. It is a type of life cover that is designed to provide guaranteed insurance protection to last the entire life of the policyholder. Whole or universal life insurance policies also have guaranteed premium rates, and a cash value component that accumulates at a guaranteed amount, usually with low interest rates.
Permanent life insurance is considered to be the only cover that can guarantee a payout 100% of the time, when compared to term life insurance (Ranz, 2013).
Different types of guaranteed life insurance plans
- Whole Life: is a type permanent life insurance that provides life cover with a cash value/investment portion for the policyholder. It has level style premiums, which means that the rates you pay will not change in the future.
- Universal Life: allows you to adjust the amount and timing of premiums you pay to suit your needs. For example, you can opt to lower your premium payments when you have a tight monthly budget, and higher amounts when you can afford it. It offers a guaranteed death benefit as well as cash value, and it is a more affordable type of permanent life insurance compared to whole life.
- Variable Life: is a type of guaranteed permanent life insurance that offers the flexibility for you to choose your premium payment frequency, amount and investment options that suit your needs and financial position. Universal life insurance also has a cash value component that you can use to finance the purchase of stocks, shares or the face value of your cover.
- Variable Universal Life: is a permanent life insurance that offers greater flexibility and maximum control on your policy. Unlike other guaranteed permanent life insurance policies, variable universal life cover allows you to adjust your life cover as your needs change throughout different stages of your life. It also offers a cash value component that you can top-up at different stages of the policy.
Benefits of guaranteed life insurance cover
There are number of different reason why some may prefer guaranteed permanent life insurance to other types of life insurance. These may include:
- Guaranteed payout and lifelong cover: With guaranteed life insurance, you are covered for your entire life, and it provides a guaranteed payout of either your cash value if you surrender (cancel) your policy or death benefit for your nominated beneficiaries.
- Investment component: The cash value portion of guaranteed permanent life insurance can be used as an investment vehicle that will grow overtime with interest earnings or if you choose to top it up yourself as a form of retirement savings.
- Financing options: You can use the cash value as a form of guarantee when you need to take out a loan or borrow money to cover your mortgage or education.
Can I still obtain guaranteed life insurance policies in Australia?
Guaranteed life insurance is a form of permanent cover that is no longer offered in Australia when superannuation became compulsory. Superannuation is now the primary retirement savings and investment vehicle for many Australians, and the main death cover component of guaranteed life insurance has been replaced with term life insurance.
Nowadays, you can also obtain term life insurance through your superannuation at a low cost and often included as a default when you join your nominated employer’s super fund.
Why can't I get guaranteed whole life insurance quotes any longer?
As previously mentioned, guaranteed permanent and whole life insurance is not available for purchase in Australia anymore and has been replaced by term life insurance. This change was made for the following reasons:
- Minimal to no support against inflation: Guaranteed life insurance policies do not provide the flexibility that you may require to increase your cover amount when your needs have changed. Your cover amount will stay the same regardless of the increased cost of living and your investment may perform in a negative manner at times of high inflation, which can be insufficient if you are looking to fund your retirement years by surrendering your policy.
- Poor investment performance: as guaranteed life insurance policies were focused primarily in securities with fixed interests, which would not perform well at times of rising inflation and interest rates. Interest earnings are often no more than what you could receive from a savings account.
- Significant establishment fees: The commission and fees in setting up a guaranteed permanent life insurance policies are often quite high and can accumulate up to two years worth of premiums, which would affect your cash value at the start of your policy.
What is guaranteed renewable life insurance?
Australian insurance providers these days offer guaranteed renewable term life insurance, which allows the policyholder to continue their cover for as long as they require it without having to undertake further medical examination, provided that the premiums are paid when due.
Guaranteed renewable life insurance can stay active up to policy expiry age at 100 years old, although this may vary between insurance providers. It is essential to read the Product Disclosure Statement (PDS) to have a clear understanding of the different features and benefits on offer, including the length of cover that you can take out.
Other features and options that can benefit you with guaranteed renewable life insurance
Besides providing you with guaranteed cover for as long as you need them, term life cover also offers you the following features:
- Joint life cover: You can include additional cover for your spouse/partner on your policy and benefit from a possible discount on your premiums.
- Child cover: You also have the option to add cover for your children against serious illness, injury or death. Some insurance may offer complementary child cover or available at an affordable rate.
- Terminal illness cover: In the event that you have been diagnosed as terminally ill with less than 12 months to live, your benefit amount will be advanced so that you can cover any of your financial commitments as needed.
- Advanced funeral benefit: Most insurance providers also offer to advance a portion of your benefit amount so that your beneficiaries can cover any funeral related expenses.
- Trauma and/or TPD rider options: For more comprehensive cover, you can opt to include trauma and/or TPD rider on your existing life cover as additional protection against a serious illness or injury.
Permanent or whole life as guaranteed life insurance policy may no longer be available in Australia, however, that does not mean that you cannot obtain cover that can provide you with lifelong protection.
Term life insurance can provide you with the financial protection that you may require for an appropriate period of time, without breaking your budget. You can also tailor your cover with different features and benefits to match your needs, as well as increase your benefit amount as your circumstance changes in different life stages.
If you are looking for more information on term life insurance with renewable feature, why not get a quote and consult with one of our insurance providers to discuss your cover options? Start comparing different life insurance policies and find the right cover to suit your needs.