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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Possible dividend earnings, which can be used to increase your cash value, reduce premiums, or withdrawn for other purposes.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.
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.
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:
Characteristics
Whole Life Insurance
Term Life Insurance
Cost
More expensive, due to the investment portion of the policy.
More cost-effective.
Length of Cover
Covers 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.
Flexibility
Not 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.
Inflation
Death 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 Benefits
The 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.
Why you can trust Finder's life insurance experts
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.
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.
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.
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
Whole of life insurance, or simply whole life insurance, provided cover for the insured's entire life as long as the premiums were paid. A portion of the premium paid went towards an investment component that could be accessed when required.
No, whole life insurance is no longer available in Australia and may only be held by those who purchased policies before 1992.
The main difference between whole life and the now more popular term life insurance was that you could invest a portion of it and withdraw funds from this when you retired.
Once superannuation was made compulsory in 1992 there was no longer any need for that investment portion of the policy, and term life insurance became more popular.
One of the main disadvantages of whole life insurance was that premiums were much higher compared to term life insurance.
Whole life insurance has decreased in popularity and is no longer available in Australia. Term life insurance is now considered a better way to plan for a death benefit payment to help your family cope financially if life does take a turn for the worse.
Richard Laycock is Finder’s insights editor after spending the last five years writing and editing articles about insurance. His musings can be found across the web including on MoneyMag, Yahoo Finance and Travel Weekly. Richard studied Media at Macquarie University and The Missouri School of Journalism and has a Tier 1 Certification in General Advice for Life Insurance.
Life insurance can be bought directly from an insurer. Learn about the benefits and a few watch outs you should be aware of.
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