What is life insurance?

Life insurance can offer some much-needed financial security for your loved ones if you pass away. It can pay out in a few different ways.

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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?

FractureLife insurance provides you or your loved ones a lump sum payment if you pass away or are diagnosed with a terminal illness or disability. It can help your family to cover ongoing expenses, such as mortgage payments, help cover funeral costs, or act as a cash gift.

6 life insurance types explained Compare providers and get personalised quotes

What life insurance covers: An overview

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.


Here's a quick look at what they are and what they cover.

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Work out how much life insurance you need

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

Learn more: Waiting and benefit periods

All life insurance policies come with a certain waiting and benefit period, while others allow you to specify your own. Here's what you need to know.

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Waiting period. This is the amount of time you'll need to wait before any benefits are paid out. This can vary from just a couple of weeks to up to 2 years.

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Benefit period. This is the maximum amount of time you could receive benefits if they are paid out in multiple instalments. For example, income protection insurance benefits are usually paid in monthly instalments for 2 or 5 years, or until you reach the age of 65.

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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.

💡Important to know: The more likely you are to claim on your policy, the higher your premium will be. For example, if you're older or a smoker, you'll probably have to pay a more expensive premium. This is because the risk of illness, injury or death is higher.

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 research team recently looked at 5 Australian brands to compare life insurance quotes. This is what we found:

Average life insurance rates for men

Amount Insured30-year-old40-year-old50-year-old60-year-old
$200,000$4.16$5.10$12.26$41.62
$500,000$9.33$12.19$27.92$96.00
$1,000,000$17.38$22.88$52.98$177.24

Average life insurance rates for women

Amount Insured30-year-old40-year-old50-year-old60-year-old
$200,000$3.20$4.01$9.38$26.76
$500,000$6.85$9.48$21.19$61.51
$1,000,000$12.65$17.69$40.08$116.34

This is based on the average costs for a non-smoker with no pre-existing medical conditions, earning a gross annual income of $80,000 (as of March 2021). Prices are subject to change.

How much does life insurance cost?

Get personalised quotes from insurers

What are life insurance premiums?

Your life insurance premium structure can have a big effect on how much you'll pay for your policy. Generally, you'll find 3 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.
➡️ Hybrid premium. Some policies use a hybrid premium structure, where the same policy has both stepped and level premiums. For example, you might find a policy that has a level premium until you reach the age of 50 and then a stepped premium after that.

Some policies will let you choose whether you want a stepped or level premium, while others will only have one premium structure available.

How much does life insurance pay out?

Depending on the insurer and the cover type, you might be able to choose how much you're insured for, or it may be set automatically. The amount paid out for any cover type works in a similar way for both standalone and bundled policies. Insurers will set a minimum and a maximum amount. These minimums and maximums vary between insurers and can also be different depending on factors like your age and occupation.

FractureTerm life insurance. This policy usually pays out an amount that you choose. The maximum depends on a range of things, including your income, your age, your occupation and the insurer itself.

FractureTPD insurance. This generally works the same as term life insurance.

UserTrauma insurance. This generally works the same as term life insurance.

Income protectionIncome protection insurance. Income protection insurance uses a benefit amount instead of a sum insured. The benefit amount is how much it pays per month. Your benefit amount might be set automatically, or you might be able to choose your own. When you choose your own, it generally cannot be more than 75%-85% of your average monthly income.

When you get TPD and trauma insurance as part of a bundled life insurance policy, generally, you cannot choose a maximum sum insured more than your term life sum insured.

How to get life insurance

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

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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

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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.

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Find your own policy by comparing insurers

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 pick out almost any kind of cover, including superannuation life insurance.

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

Enter your details, and one of our partner brokers will call you. They will discuss your quote, options and available products.

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Do you smoke?

An adviser can help you find cover from trusted life insurance brands.

  • Get competitive quotes from multiple brands
  • Lower rate of declined claims (according to ASIC)
  • Save time and effort

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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 or your beneficiaries will have to wait before you receive any benefits. Depending on your 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.

Compare life insurance policies and get a personalised quote

You can compare some of your options below.

Name Product Maximum cover Maximum Entry Age Fully Underwritten? Terminal Illness Benefit Optional Extras
NobleOak Life Insurance
$15,000,000
69
$3,000,000
TPD cover, Trauma cover
Cover up to $15,000,000 with NobleOak Life Insurance.
Real Family Life Cover
$1,000,000
64
$1,000,000
TPD cover, Trauma cover
Get a refund of 10% of the premiums you've paid (in the first 12 months) with The Real Reward™ .
Medibank Life Insurance
$2,500,000
70
$2,500,000
TPD cover, Trauma cover
Medibank health members save 10% on premiums every year. T&Cs apply.
Zurich Ezicover Life Insurance
$1,500,000
69
$1,500,000
No optional
Get your first month free and a 10% discount by taking out a second life insurance policy (discount applies to the second policy). Customers who suffer a serious side effect from an approved COVID vaccination may be eligible for a $50,000 one-off payment. T&C’s apply.
ahm Life Insurance
$1,500,000
65
$1,500,000
TPD cover, Trauma cover
ahm Health members can save 10% off premiums.
RAC Life Insurance (Only available in Western Australia)
$25,000,000
69
$25,000,000
TPD cover, Trauma cover
When you purchase RAC Life Insurance, WA residents receive complimentary RAC membership which includes access to discounts on fuel, savings on shopping, entertainment and more. T&Cs at rac.com.au.
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What are the advantages and disadvantages of 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.

Questions you might still have about life insurance

Do I get money back if I cancel my life insurance?

You usually have 30 days after your insurance begins to cancel and receive a full refund on any premiums you've paid. If you cancel after this time, you generally won't be refunded for the premiums you've already paid.

Can you cash out life insurance?

Sometimes you can access the money that you've accumulated. However, if you do that, you may have to surrender the coverage that your policy provides.

Do you pay taxes on life insurance payouts?

No. Life insurance benefits are usually tax-free in Australia.

Can you have more than one life insurance policy?

Yes. Many people have more than one life insurance policy. This is especially typical if you have life insurance inside your superannuation; you may decide to take out another policy that isn't in your super.

Multiple life insurance policies

Does the cause of death impact a claim?

Most policies will cover all causes of death once the policy has been held for 12 months. If your death occurs within the first 12 months of holding the policy, then you are only covered for accidental deaths.

Does life insurance cover suicide?

Many life insurance policies cover suicide, but generally only after a specific period of time, for example, 1 or 2 years. If the policyholder commits suicide before this time, any nominated beneficiaries aren't likely to receive any benefit.

Does life insurance cover suicide

Can I have more than one beneficiary?

Yes. Generally, you can nominate up to 5 beneficiaries per policy, and the benefit can be distributed as you wish.

What is term insurance?

Term insurance is another name for life insurance. It pays out a lump sum to your loved ones if you are diagnosed with a terminal illness or pass away unexpectedly. Unlike whole life insurance, term insurance only covers an individual for a set amount of time, normally between 10 and 30 years.

What is whole life insurance?

Whole life insurance covers a policyholder for the entirety of their life, rather than a set period. However, it's no longer available in Australia. After compulsory superannuation was introduced in 1992, whole life insurance was slowly replaced by term life insurance.

What is the best life insurance?

Our research team compared 20 insurance brands and rated NobleOak the highest thanks to its affordable premiums and wide range of added features and benefits. Other brands that came out on top include TAL, Medibank, ahm and Guardian insurance. It's important to remember that no single insurance brand works for everyone. You should carry out your own research to find out what brand works best for you.

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