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What is life insurance?

Find out the ins and outs of life insurance, from how it works to why it’s so important for many families.

If you get seriously ill, become disabled or die unexpectedly, life insurance can help cover any existing or future expenses for your family. In this guide, we explain what life insurance covers, how much it costs and how to get it in Australia.

What is life insurance and how does it work?

Life insurance is an agreement between an insurer and an individual in which the insurer agrees to pay a chosen beneficiary a sum of money in exchange for a premium upon the death of the insured.

Practically, it provides you or your loved ones a lump sum payment or a regular income if you pass away, are sick or injured or are diagnosed with a terminal illness or disability.

Life insurance can help your family to cover ongoing expenses, such as mortgage payments, help cover funeral costs, or act as a cash gift.

Life insurance glossary: Get started with understanding the key terms

A rundown of the tricky definitions for life insurance. Plus, what to look for when you're comparing.

Finder survey: How many Australians understand how life insurance works?

Response
Yes66.31%
No33.69%
Source: Finder survey by Pure Profile of 1110 Australians, December 2023

What does life insurance cover?

There are 6 types of insurance that come under the term "life insurance". You can choose which types of protection you want included in your policy. Choosing more cover will cost more but can also bring more peace of mind.

Life insurance

Life/Death cover

Pays out a lump sum in the event of your death, and in some cases, if you are diagnosed with a terminal illness.

Income protection

Income protection

Pays up to 85% of your salary if you can't work due to illness or injury.

Trauma

Trauma

Pays a lump sum to cover recovery time if you're diagnosed with a specific medical condition such as a stroke or cancer.

TPD

TPD

Pays a lump sum to help clear debts and cover medical costs if you become totally or permanently disabled.

Personal acccident

Personal accident

Provides either a lump sum or monthly payment if you're injured in an accident.

Funeral insurance

Funeral

Pays out a lump sum to your family when you die, which they can use to cover the cost of your funeral.

Work out how much life insurance you need

There is no one-size-fits-all approach with life insurance; everyone's circumstances are unique.

That being said, you could take out even the best life insurance policy out there and still not have enough cover if you’re underinsured. Here are a few ways you can work out how much cover you need:

Look at your lifestyle and financial responsibilities

It's a good idea to consider:

  • Outstanding debts. How much debt do you have left that would be passed on to your family?
  • Financial safety nets. Do you have any savings, assets or existing insurance that can help cover your family's living expenses if you aren't around?
  • Living expenses. Work out how much you and your family spend on things like food, rent and education.
  • Cover period. How long would you like to be covered for? This could depend on your savings, the size of your family and your household income.

Using a calculator

You can use our life insurance calculator to work out a rough estimate of your cover needs. This may help when you're speaking to an adviser or applying directly with an insurer.

Answer a few questions about your assets, debts and cover to get an estimate on how much life insurance you might need.

Ready to find a policy? Start comparing your options

How much does life insurance cost?

The cost of life insurance depends on a range of factors that determine how likely you are to make a claim. This includes your age, smoking status, general health, and the level of cover you want.

Some factors that could affect your premium include:

  • Cover types. The more cover types you have with a bundled life insurance policy, the higher your premium.
  • Sum insured or benefit amount. The more a policy has to pay out, the higher your premium.
  • Your health. Someone in poor health will usually have a higher premium than someone in good health.
  • Policy features. Special features, extra cover or optional additions can raise your premium.
  • Premium structure. Your premium structure refers to whether your life insurance policy has a stepped premium, level premium or hybrid premium.

To give you a better idea of how much you might pay, our 2023 Finder Awards research team looked at 11 Australian providers to compare life insurance quotes. This is what we found:

Average life insurance rates for women – monthly

Amount Insured30-year-old40-year-old50-year-old
$500,000$29.18$46.54$107.18

Average life insurance rates for men – monthly

Amount Insured30-year-old40-year-old50-year-old
$500,000$42.09$62.36$106.72

This is based on the average costs for a non-smoker with no pre-existing medical conditions, earning a gross annual income of $70,000 (as of Febuary 2023). Prices are subject to change.

How much does life insurance cost?

Get personalised quotes from insurers

How to get life insurance

Generally, there are 3 different ways to purchase life insurance:

Find your own policy

You can compare policies yourself, work out what kind of cover you want and determine which life insurance policy is right for you.

This gives you the advantage of being able to tailor your policy to your needs, apply quickly online or over the phone and often be covered straight away.

🔎 Use our latest comparison tool to make this decision easily.

Expert man icon

Speak to an insurance adviser

Lots of people take out life insurance policies with the help of financial advisers or insurance brokers.

In fact, some life insurance providers will only sell policies through brokers.

By talking to an experienced professional, you can understand what products are best for your unique situation.

📌 Remember that you will need to pay for this service.

Speak to an insurance adviser

Hand holding money icon

Go through your superannuation

Superannuation life insurance is a type of life insurance that is included in your superannuation automatically.

You'll pay premiums through your superannuation contributions, so it won't affect your daily cash flow.

📌 However, this type of cover is limited and may not be enough to cover your specific circumstances.

Things you need to know before you apply:

  • Be honest in your application. If you lie in your application, your cover may be voided later down the line, and you won't receive a refund for any premiums that you've paid.
  • Know how much cover you need. Experts recommend that your life insurance covers at least 10 times your annual income, but the exact amount varies for everyone. You can use our life insurance calculator below to work out a rough estimate.
  • Understand your waiting period. A waiting period is the length of time you will have to wait before you receive any benefits for an income protection claim. This can be between 1 and 3 months.
  • Break down ongoing premium costs. Life insurance premiums tend to increase as you get older. Make sure you will still be able to afford payments 10, 20 or 30 years from now.
  • Your benefits might be capped. The amount of life insurance you qualify for can be affected by how much you earn and your medical history.
  • Think carefully about your beneficiary. In the event of your death, your beneficiary will receive your life insurance payment. Think carefully about who you would like to receive the payment and let them know.

Top picks for life insurance in Australia

Top pick:
Winner
NobleOak Life Insurance
Finder Award
  • $25 million sum insured
  • 1st place in Finder Awards: 8.45 final score
  • Fully underwritten policy
  • Cheapest average policy price
Top pick:
Finalist
TAL Accelerated Protection Life Insurance
Finder AwardBonus
  • Pays up to $5 million in TPD
  • 2nd place in Finder Awards
  • Interim accident cover
  • $25,000 funeral advancement
Top pick:
Finalist
RACWA Life Insurance
  • Pays up to $25 million
  • 3rd place in Finder Awards
  • TPD and trauma options
  • $15,000 funeral advancement

Compare more life insurance options and get a personalised quote

1 - 8 of 15
Name Product Maximum Cover Maximum Entry Age Terminal Illness Benefit Claims Acceptance Rate Average Claim Time Sum Insured
TAL Accelerated Protection Life Insurance
No set limit
73
Not stated
Data not available
1 months
$249,285 million
Our verdict: One of Australia's leading life insurers. Automatically includes child critical illness cover. Plus, it comes with a level premium option (e.g. costs remain similar as you get older).

⭐ Current offer: Get up to 15% off your TAL Life, Trauma or TPD insurance policy for life - if you have a Body Mass Index (BMI) between 19 and 28 at the time of your application. Offer T&Cs on insurer website apply.
Medibank Life Insurance
$2,500,000
70
$2,500,000
Data not available
Data not available
Data not available
Our verdict: Medibank offers a higher payout limit ($2.5 million) than 15 other providers. Get a 10% discount if you're already a Medibank Health Insurance member.
NobleOak Life Insurance
$25,000,000
74
$25,000,000
96.90%
1.1 months
$24,483 million
Our verdict: Finder Life Insurance Award winner for the last 5 years in a row. Good value for money, simple application process and a high claims acceptance rate.
ahm Life Insurance
$1,500,000
55
$1,500,000
Data not available
Data not available
Data not available
Our verdict: ahm offers a simple application process. You can be approved online or over the phone. There are no medical or blood tests needed.
RACWA Life Insurance
$25,000,000
74
$25,000,000
96.90%
1.1 months
$24,483 million
Our verdict: RAC’s maximum death cover limit of $25 million is one of the highest limits you’ll find, including $5 million in TPD insurance. You can get an online quote, but you’ll need to call RAC to get trauma cover. Benefit from added peace of mind with fully underwritten insurance. RAC is also WA-based but services all of Australia.
AAMI Life Insurance
$1,500,000
65
$1,500,000
Data not available
3.1 months
$37,768 million
Our verdict: There’s flexibility with AAMI as you can add another adult to your cover, with a competitive limit of $1.5 million. Easy application process with no medical exams.

⭐ Current offer: Take out a new AAMI Life Insurance policy and get $100 eGift card after your first 4 months of cover. T&Cs apply. Ends June 30, 2024.
Suncorp Life Insurance
$1,500,000
65
$1,500,000
Data not available
3.1 months
$37,768 million
Our verdict: Competitive maximum cover limit of $1.5 million. Suncorp lets you change your cover amount by up to $100,000 after a big life event, such as having a baby.

⭐ Current offer: Take out a new Suncorp Life Insurance policy and get $100 eGift card after your first 4 months of cover. T&Cs apply. Ends June 30, 2024.
Real Family Life Cover
$1,000,000
64
$1,000,000
88.90%
2.4 months
$53,238 million
Our verdict: The application is simple; it can be done with 1 phone call and there are no medical exams. But households with larger debts may need more than a $1 million payout.

⭐ Current offer: Get back 10% of the premiums you’ve paid after 1 year.
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Why compare life insurance with Finder?

  • You pay the same price as buying directly from the life insurer.

  • We're not owned by an insurer (unlike other comparison sites).

  • We've done 100+ hours of policy research to help you understand what you're comparing.

How are life insurance premiums structured?

Your life insurance premium structure can have a big effect on how much you'll pay for your policy. Generally, you'll find 2 different choices available:

  • Stepped premium. With a stepped premium, the insurer updates your premium once a year and increases it based on your current age. This means the cost of your insurance could increase significantly over time.
  • Level premium. With a level premium, the cost depends on your age at the time you purchased the policy. It won't be updated as regularly and shouldn't increase too much over time.
  • Some policies will let you choose whether you want a stepped or level premium, while others will only have one premium structure available.

    Do I need life insurance?

    If you're still not convinced whether you need to take out life insurance, here are some key pros and cons to consider:

    Pros

    • Your beneficiaries will have financial protection if you die unexpectedly or are diagnosed with a serious illness.
    • Life insurance benefits in Australia are usually paid out tax-free.
    • It can help your loved ones pay for your funeral in the event of your death.
    • Benefit from lower premiums while you're young.

    Cons

    • You'll need to factor monthly premiums into your budget.
    • The claims process can be long-winded, and payout isn't always granted.
    • Ensure you read the small print, as each company includes specific things that may void your policy.
    • Term life insurance will only cover you for a specific period of time (between 10 and 30 years).
    • Premiums can increase as you get older.

    Can I bundle my insurance together?

    You can choose whether to take out different types of life insurance under one policy or purchase standalone policies. If you choose to take out standalone policies, you will need to let each insurer know that you have multiple life insurance policies that are active.

    Bundled life insurance

    This usually includes term life insurance plus a number of other cover types. You will have a single sum insured for the entire policy, which will be reduced if any part of the policy pays out.

    Example: You might have a bundled life insurance policy with term life insurance and TPD insurance. The total sum insured is $1 million, and the TPD sum insured is $500,000. This means that if you die, that policy will pay $1 million, and if you become permanently disabled, the policy will pay $500,000. However, if you claim TPD insurance and then die later, it will only pay out $500,000 when you die since you have already received $500,000 from your TPD claim.

    Pros

    • Lower premium.
    • Covered for lots of eventualities.
    • Convenient as only requires one premium payment.

    Cons

    • Only one sum insured for the entire policy.
    • Less customisable.
    • Fewer companies to choose from.

    Standalone cover

    This is when you take out different types of insurance separately, so each has a separate sum insured and can be claimed separately.

    You can get different cover types from different insurers, and it is generally more flexible.

    Example: Someone who does not have a family might not want term life insurance but instead want income protection insurance and trauma insurance. They might take out a standalone policy for income protection insurance and then take out a different policy for standalone trauma insurance.

    Pros

    • Easier to customise.
    • Wider selection of companies to choose from.

    Cons

    • Can be more expensive than bundling.
    • Have to pay multiple premiums.

    Why you can trust Finder's life insurance experts

    free

    We're free

    You pay the same as buying directly from the life insurer. Better still, we regularly run exclusive deals that you won't find on any other site – plus, our tables make it easy to compare policies.
    expert advice

    We're experts

    Our team of life insurance experts have researched and rated dozens of policies as part of our Finder Awards and published 250+ guides to make it easier for you to compare.
    independent

    We're independent

    Unlike other comparison sites, we're not owned by an insurer. That means our opinions are our own and we work with lots of life insurance brands, making it easier for you to find a good deal.
    help

    We're here to help

    Since 2016, we've helped 270,000+ people find life insurance by explaining your cover options, simply and clearly. We'll never ask for your number or email. We're here to help you make a decision.

    Frequently asked questions

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