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How does life insurance work?

Life insurance offers protection for your loved ones after you die. Find out exactly how it works and if you need it.

Life insurance is a form of financial protection that looks after your loved ones when you die or can't work anymore. With the right policy, life insurance can provide your family with enough money to pay off your debts and allow them to continue to enjoy their current standard of living.

How does life insurance work?

Life insurance helps your family cope financially after you die. It can pay off any loans and debts you have, such as a mortgage or car loan, as well as provide your family with enough money to pay for everyday living expenses. In exchange for this financial security, you pay a monthly payment (a premium) to the life insurance provider. Your premiums are calculated based on your chances of dying, so factors such as your age, health, occupation and sex are taken into account.

How do I get life insurance?

You can buy a policy online or through a broker. Check out the comparison table below to get started.

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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Finder survey: How many Australians think life insurance is worth it?

Response
Buying a home17.3%
Source: Finder survey by Pure Profile of 1110 Australians, December 2023

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.

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

When should I get life insurance?

If you want it to be as affordable as possible, the best time to get life insurance is when you're fit, young and healthy. This is because you're more likely to get cover without exclusions and it'll be cheaper. Consider getting life insurance at the following important life stages:

  • Taking out a mortgage
  • Getting a new job
  • Getting married
  • Having children

If you wait until you're older, and perhaps have developed some health issues, your life insurance premiums are likely to be more expensive. There is also a chance that your medical condition will be excluded from cover. Many insurers exclude pre-existing conditions when you buy a policy, which means they won't pay out if you die because of that illness.

How much life insurance do I need?

How much life insurance you need depends on how much you earn and how many repayments and expenses you have. To give you an idea of how life insurance works and how much you may need, check out our free life insurance calculator.

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

How do life insurance claims work?

Unlike most insurance claims, a life insurance claim isn't made by you, the policyholder. When you take out a policy, you'll nominate a beneficiary – usually a loved one. They are the one(s) who will have to file the claim. To make a claim, they will need to do the following:

  • Get a copy of the death certificate
  • Let the insurer know by providing your policy information, date and cause of death

At this stage, your insurer will usually send your beneficiaries a claims form to complete and return. They will most likely need to provide a copy of the death certificate and any other documents that the insurer has requested. They will also be asked to provide the bank account they would like the payout to be deposited into.

How do life insurance payouts work?

With a standalone life insurance policy, the beneficiaries you nominate will receive the payout in one large lump sum after you die, deposited in the bank account(s) of their choice. If you outlive your beneficiaries and don't update your policy (you can simply do this by calling your insurer), your funds will be distributed to your estate.

Things can be a little different if you have a life insurance policy inside super. In these circumstances, you need to make sure that you make a binding nomination, which is a written notice given to the trustee of your super fund. Otherwise, your super fund decides who the lump-sum payment goes to.

How do the different types of life insurance work?

There are four different types of life insurance. Here's how they work:

What should I look for in a life insurance policy?

When figuring out how life insurance works, part of the problem is not knowing what to look for. Here are the key terms to check and compare.

  • Maximum cover. This is the most they will pay out, so if you need more than say, $1 million, don't go with a provider that caps it at this amount.
  • Maximum entry age. Some insurers stop providing cover once you reach a certain age. This usually gets difficult around the age of 65.
  • Funeral cover. Look for a life insurance policy that provides a funeral benefit. This often pays out quicker than the entire lump sum and ensures your loved ones don't need to worry about paying for the funeral.
  • TPD cover. If you have a high-risk job, it's definitely worth buying a life insurance policy that also covers total and permanent disability. It will pay out if you need to permanently stop work due to injury or illness.

How does cancelling a life insurance policy work?

You are allowed to cancel your life insurance policy at any time. Many insurers also have a cooling-off period, meaning you can cancel within a set period without financial loss. However, it's important to know that your insurer doesn't need to refund any of the premiums you've already paid if it is outside of that period.

Also keep in mind that if you cancel and sign back up at a later date, you will probably be hit with higher premiums and possibly some exclusions. This is because you will be older than when you signed up to your initial policy and may have had health issues in that time.

However, if you've already done a bit of shopping around and found that you could be paying less for the same amount of cover, then switching might be a good idea. You can typically cancel your policy by getting in touch with your insurance provider by phone or email.

Why you can trust Finder's life insurance experts

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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.
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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.
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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.

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