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Whole life insurance

Whole-of-life insurance is no longer available in Australia, but term life insurance, which covers you for a limited time period, is a good alternative.

Whole life insurance was popular in the '70s and '80s, but it's no longer sold in Australia. A reliable alternative that can provide a safety net for you and your family is term life insurance, which is now used instead of whole life insurance.

The main difference between the two is that whole life insurance used to include an investment portion, which Aussies could withdraw funds from when they retired. When superannuation was made compulsory, there was no longer any need for that investment portion of the policy.

How did whole life insurance work?

Before superannuation was made compulsory, most workers used whole life insurance as a means of providing funds for when they retired, by surrendering their policies so they could access the policy’s cash value. A portion of the premium paid for whole life assurance having been put aside for investment purposes and another to fund the insurance cover.

Cost difference between whole life insurance and term life insurance in Australia

Whole life insurance was considerably more expensive to low cost term insurance, due to the cash value component. However, it is important to note that while the guaranteed earnings you can get with whole life insurance is attractive, often the interest you receive from the investment portion does not pay any more than when you have savings account with a bank.

However, some might still consider whole life to be a worthy investment in Australia, this is because whole life was seen as forced savings and by having a cash value component. Policyholders had the assurance that the life insurance company would have to pay out on whole life insurance one way or another, either in event the life insured’s death or when the policy was surrendered.

What were the advantages and disadvantages of whole life insurance?

Advantages
Disadvantages
  • Peace of mind of having a lifelong protection.
  • Often used as mandatory savings.
  • Access to cash when your circumstances change.
  • Premium remains the same throughout the life of the policy, regardless of your age.
  • Guaranteed death benefit.
  • Your cash value portion will continue to grow each year with guaranteed interest earnings.
  • Possible dividend earnings, which can be used to increase your cash value, reduce premiums, or withdrawn for other purposes.
  • Possibility to save money to fund your retirement.
  • Premiums are much higher compared to term life insurance.
  • Not flexible when you need to increase or decrease your cover.
  • The cover amount does not keep up with inflation, which puts your beneficiaries at risk of underinsurance at the time of claim.
  • Poor investment choice as the interest you earn on the cash value may be lesser than other available investment alternatives.
  • They were also very high fee products, paying commissions to the advisers who sold the policies.

What's the difference between whole life and term life insurance?

Similar to whole life insurance, term life cover provides a lump sum death benefit in the event that the policyholder passes away while the policy is still active. There are some notable differences between whole life and term life insurance. These include:

CharacteristicsWhole Life InsuranceTerm Life Insurance
CostMore expensive, due to the investment portion of the policy.More cost-effective.
Length of CoverCovers you for your entire life, provided that premiums are paid when due.Remains active for the term selected by policy owner at time of application. This can usually be renewed into the future.
FlexibilityNot so much - you can’t change your cover amount when your needs change.Very flexible - you can apply to increase your cover when necessary without having to provide further medical evidence.
InflationDeath benefit stays the same, regardless of the inflation rate, which may result in insufficient cover in the future.Cover is automatically increased each year to keep up with inflation.
Features and BenefitsThe cash value component allows you to borrow funds when required, used as a collateral against a loan, or to pay for your premiums.Greater range of features and benefits that you can tailor to suit your needs. You can also link term life with other types of life insurance to cover temporary and permanent disability.

How long can term life insurance be taken out for?

You have the power to select a period of cover most suitable for your situation. Applicants usually select terms of 5, 10, 15, 20 and 30 years. Another benefit of term life insurance is that you will continue to be insured in the future as long as you meet the premium payments when due, regardless of any changes to your health, occupation or pastimes.

Get a quote for life insurance

Term life insurance is considered more affordable than whole life insurance, and it's still possible to find a policy with no age limits. The options below also have an expiry age of at least 99 so long as you keep paying your premiums.

Name Product Maximum Cover Maximum Entry Age Terminal Illness Benefit Claims Acceptance Rate Average Claim Time Sum Insured
NobleOak Life Insurance
Finder AwardBonus
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.

⭐ Current offer: Get two months free on all cover types apply by 14 June 2024. T&Cs 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.

⭐ Current offer: Save 10% on your first year of Medibank Life Insurance when you apply by 1 July 2024. T&Cs apply.
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.
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.
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.

⭐ Current offer: Get 10% off your first year of ahm Life Insurance when you apply by 1 July 2024. T&Cs apply.
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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We put every effort into ensuring information on Finder is accurate. This article was reviewed by Karen Eley from our Editorial Review Board as part of our fact checking process.

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Karen Eley is the founder of Women Talking Finance, which provides money coaching and financial literacy and education services. An experienced and former financial adviser who has worked in financial services industry for 22 years, Karen is a Certified Money Coach (CMC), holds a Bachelor of Accounting and an Advanced Diploma in Financial Planning and CFP.

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