
Get exclusive money-saving offers and guides
Straight to your inbox
Updated
We’re reader-supported and may be paid when you visit links to partner sites. We don’t compare all products in the market, but we’re working on it!
Term life insurance covers you in the event of death by paying a sum to your nominated beneficiaries. More comprehensive policies can also pay out for total and permanent disablement (TPD), temporary inability to work (income protection) and specific, named health events (trauma). When selecting a life insurance policy you should pay special attention to:
This brief guide explains everything you need to know about loading, indexing and exclusions when choosing a life insurance policy, and how to adjust them to suit your needs.
Find out what your life insurance options are with the aid of an adviser
To discover any exclusions which may apply, read the policy’s product disclosure statement (PDS). The insurer must mention all applicable exclusions in this document. These are the things not covered by your insurance policy, or conditions under which it will not pay out. In the case of life insurance, these might be certain activities, circumstances or health issues. Certain exclusions might only apply to particular components of the policy.
You should be able to find out all you need to know about exclusions by reading the PDS, but you can also contact the insurer’s customer service representatives for answers.
The two main types of exclusions are:
A loading is a percentage increase on the standard premium and/or excess. This is a relatively easy way for the insurer to adjust prices for high-risk customers who might otherwise be uninsurable, but is also generally applied to most policies to tailor the cost to your needs. Loadings are added if you are more likely than average to make a claim in the future. The following generally incur loading costs:
Indexing is how the different sums of money involved in a life insurance policy are adjusted to keep up with inflation and changing prices. Premiums are generally indexed according to:
Indexation can also be used as an option to ensure that the sum you are insured for will be adjusted for inflation. It can also be referred to as:
Typically this is applied as a yearly increase in the amount you are insured for. Most insurers will apply indexation yearly at either the CPI or the inflation index, whichever is higher, up to a maximum of 5% per annum.
Inflation is a term used to reflect price rises for goods and services in the economy that impacts your cost of living.
The two main tools to measure goods and services are the Consumer Price Index (CPI) and the Retail Price Index (RPI).
The CPI is the preferred option as a measure for inflation, and different to the RPI, it doesn’t take into account most housing costs, like mortgage repayments and council costs.
Economists also use the CPI as an indicator for interest rate cuts or rises.
The way inflation hits your hip-pocket is simple. Let’s say you purchase a bottle of water for $3.00, and inflation for the year is 10%, the following year you will pay $3.10 for the same drink. Therefore, if your income hasn’t risen with the annual inflation, you won’t be able to buy as much of the same respective product. By the same token, if a life insurance sum does not increase with the rate of inflation then it may not be enough to cover the living expenses of your family in the future.The effect of inflation on your money
Indexation? | What happens to sum? |
---|---|
| That $100,000 will increase to keep up with inflation, to the maximum of 5%. After a year your sum insured will have increased to $105,000. After several years it might have increased to more than $115,000. |
| You will still be insured for $100,000, but after a year it’s only worth the equivalent of $95,000 in terms of what it can actually buy. After a few years that $100,000 might be worth less than $85,000 in the year you took it out. |
Indexation for inflation is sometimes included in policies by default, but can also be added as an optional extra at an additional cost. It can make a huge difference for long-term policies, but less so for shorter time frames. If you policy is indexed for inflation, then your premiums will typically increase correspondingly each year, unless clearly stated otherwise.
Yes. In some cases you may choose to do so, while other cases will involve them changing automatically. Some of the reasons your loading, exclusion and indexing may change include:
Generally you will have some flexibility with loading, exclusions and indexing. If you want to make a change, or adjust the terms of a policy before taking it out, ask your insurer whether it’s possible. Many providers are happy to accommodate customers as long as they find the risk levels.
Find out how much dentures cost in Australia and how you can get cover with mid-level health insurance.
$100,000 life insurance policies can be very affordable. Compare costs and cover here.
Compare $500,000 life insurance policies, costs and cover here.
The ANZ Rewards Platinum Credit Card offers a competitive rewards program, $0 annual fee for the first year, a $500 gift card, a balance transfer offer and a range of complimentary insurance covers.
Learn how to get life insurance if you have asthma.
How to get life insurance if you have been in a coma.
How to get life insurance if you’ve had a stroke.
The ins and outs of life insurance if you have epilepsy.
Can you get life insurance if you have a pacemaker? We explain how it works.
How to get life insurance for women.