Which Life Insurance Policy is Right for You?

Which Life Insurance Policy is Right for You?

Deciding which life insurance is best for you

Unfortunately there is no quick answer to the question “which life insurance policy should I choose?” Like choosing a mortgage plan to pay off your home, life insurance is a long-term investment that requires careful consideration of the buyer's financial obligations, any existing cover that is in place and their budget. Individuals looking to take out cover can consult an insurance adviser to help them decide on a suitable policy though it is always worth getting some background knowledge of what is available so that an informed decision can be made.

Review quotes for different life insurance options

What types of life insurance are available in Australia?

The Australian Insurance Industry offers four main types of cover to choose from and a number of sub-policies with reduced benefits. This section will give an overview of each of these and the types of buyers that they may be suitable for.

TypeBenefitAdditional BenefitsSuitable For
Life InsuranceProvides a lump sum benefit payment if the policy owner passes away or is diagnosed with a terminal illness and not expect to survive for longer than 12 months.
  • Final Expenses Cover: Provides an advancement of the sum-insured to cover the immediate expenses that may arise following death.
  • Child Cover: Option to receive a lump sum benefit if policy owners child passes away.
  • Illness and Injury Cover: Many life insurance policies will allow applicants to include cover for illness and injury. Benefits are provided in a lump sum.
  • Link with TPD or Trauma Cover: Most life cover policies will allow for applicants to add cover for TPD and Trauma as additional cover options to compliment their life cover. A fee is generally charged for these add-ons.
  • People with financial dependents: Life insurance can ensure that your spouse, children or anyone that is financially dependent do not endure any financial hardship following your death.
  • People with no financial dependents: People with no financial dependents may still have debts to cover in the event of their death. This can include mortgage debt, credit card debt, personal debt, medical bills and funeral costs.
Income ProtectionProvides an ongoing benefit payment of up to 75% of ones regular income if they are unable to work for an extended period of time as a result of an illness or injury that they have suffered.
  • Business Expenses Cover: Additional benefit payment for business owners to cover overhead costs of their business.
  • TPD Benefit: A lump sum payment if the worker become permanently disabled.
  • Rehabilitation Expenses: Additional benefit provided to cover rehabilitation expenses that may be incurred following an injury or illness.
  • Workers: Anyone engaged in full-time employment that are not in a financial position to cover their ongoing living expenses and debts. Benefit payments can usually last until the age of 65.
  • People entitled to workers compensation should still consider this cover as it will provide protection for both injury and illness that is sustained outside of the workplace and will entitle the policyholder to a much more comprehensive range of benefits.
Trauma InsuranceProvides policy owner with a lump sum benefit payment in the event that they suffer a major illness such as heart attack, cancer, stroke or paralysis.
  • Child Cover: Applicants can choose to cover their child to receive a lump sum benefit if they are to suffer a critical illness. This can be usually be converted to an adult policy once they turn 21 years of age.
  • Death Cover: Some policies will also provide a lump sum benefit payment if the insured is to pass away.
  • Chronic Diagnosis Benefit: An increase for the sum-insured will be paid for specified medical conditions.
  • People with financial dependents: A critical illness can force someone to take a great deal of time out of work and in some cases never return to full-time work again. The lump sum payment can ensure that their financial dependents are not left in a difficult financial position.
  • People without financial dependents: The lump sum benefit provided through trauma cover can ensure that claimants can continue to maintain their way of life during their illness and remain on top of financial obligations.
  • Older applicants: People in the later stages of their life can be more susceptible to developing critical illness and may want to ensure their is a financial safety net in place for their immediate family and other financial dependents.
Total and Permanent Disablement InsuranceProvides a lump-sum or ongoing benefit payment if the insured is made permanently disabled and unable to return to work or unable to return to work to their previous capacity.
  • Financial Planning Reimbursement: Benefit paid to cover costs of seeking financial advice from a certified financial planner following disablement.
  • Loss of Independence Conversion: TPD benefit may convert to a loss of independence existence benefit once the policy owner turns age 65. This enables them to be entitled to a benefit payment until age 100.
  • People with financial dependents: Similarly to life cover and trauma insurance, TPD cover can provide much needed financial assistance to ensure that the policy owner and their family/financial dependents are able to carry on with their current way of life following disablement and loss of income or reduction in income.
  • People without financial dependents: TPD is still beneficial to anyone without the financial backing to maintain their current way of life into the years ahead. TPD can cover daily living expenses, outstanding debts, necessary modifications to home following disablement and rehabilitation expenses among many other costs that may be incurred following disablement.

Linking different types of insurance cover

It is worth noting that most insurers will enable applicants to bundle their insurance so that they can take advantage of the different types of cover available. As an example, most policies will allow people to take out trauma insurance within their life cover or take it out as a linked standalone policy.

Benefit of linking policies

The benefit of taking out two separate policies is it may provide more comprehensive protection. It is also worth noting that if a benefit is paid for trauma or tpd that is linked to life cover, the sum-insured for life cover will be reduced by the sum of the benefit paid. This can be avoided by adding a buy back benefit to the policy which will allow the insured to repurchase the reduce sum-insured 12 months after the benefit was paid. This can be exercised for both Trauma and TPD.

Other types of insurance available

TypeBenefitAdditional BenefitsSuitable For
Keyman InsuranceProvides a lump-sum benefit payment to business owners following the loss of a key worker in their business. Benefit may be used to cover hiring and retraining costs and any loss that may be incurred to the business following the worker's death. Keyman insurance can also be taken out as income protection insurance, critical illness or TPD.Key Person is more a loosely fitted term to describe different types of insurance cover be it life, income, disability or critical illness for key workers so additional benefits can vary greatly. It is more beneficial for business owners to consider the losses that may be covered including;

  • Revenue losses: Replacing lost profits, replacing lost income for business.
  • Capital losses: Repaying outstanding debts, loss of customers, cost of hiring and retraining new worker, cost of production in losses, compensating loss of goodwill, discharging security over guarantors property.
Keyman insurance is suitable for business owners with workers that the business depends on for their skill, experience and drive. A key worker is essentially a worker whose loss could have a direct financial impact on the business. It may include;

  • Company directors,
  • Working partners,
  • Financial controllers
  • Programmers,
  • Anyone with a skill that the business depends on and is particularly difficult to replace.
Funeral InsuranceProvides a lump sum benefit to cover funeral costs and other immediate expenses that may be incurred following policy owners death.
  • Accidental death benefit: Benefit increase for accidental death after first 12 months. Can be up to three times sum-insured.
  • High-risk applicants: Funeral insurance can be a suitable option for people that have been refused life cover in the past due to their age, occupation, health or lifestyle. Acceptance is usually guaranteed with no medical underwriting required.
  • Retirees: Funeral insurance may be suitable for older people with reduced financial obligations that are looking for a smaller benefit to cover final expenses following death.
Accidental Death InsuranceLump sum for death caused by accident only.
  • Premium Protection: If policy owner becomes disabled for a specified number of consecutive days, insurer will cover premium payments for policies taken out with that insurer.
  • Accidental Injury Cover: Many policies will provide the option to receive a lump sum benefit for accidental injuries.
  • High risk applicants: Accidental death can be suitable for people with pre-existing medical conditions as there is rarely a need for medical underwriting to gain acceptance.
Accidental Income CoverOngoing benefit payment of 75% of the policy owners regular income for accidental injuries. No benefit will be provided for serious illness.
  • Guaranteed acceptance: Many policies will offer guaranteed acceptance whereby no medicals are required to receive cover.
  • People with financial dependents: Accidental income is a suitable option for applicants that are looking for affordable protection to ensure they are able to keep on top of financial obligations following a serious injury.
  • People with financial obligations: Can provide suitable cover for workers that want to keep on top of outstanding debts and living expenses while they are forced out of work due to injury. A more affordable option to the comprehensive income protection insurance policy.
  • Workers with pre-existing medical conditions: With guaranteed acceptance provided on most policies, Accidental Income Insurance is a great option for workers that have been refused income protection in the past due to pre-existing medical conditions.
Mortgage InsuranceLump sum benefit to cover mortgage repayments following death of the policy owner.
  • Disability Benefit: Ongoing benefit payment of a portion of the sum-insured for a maximum duration of time if the policy owner becomes disabled as certified by a medical practitioner.
  • Involuntary Unemployment: Portion of the lump sum benefit payment is paid for a maximum period if the insured becomes involuntarily unemployed. Some providers will also cover other outstanding loans that the policy owner has taken out with them.
  • Mortgage Holders: Mortgage protection is specifically designed for people looking to cover the costs of their mortgage in the event of their death. It is a simplified and less expensive form of life cover that may also provide cover for involuntary unemployment.

Tips to decide which life Insurance is suitable for you

Now that you know what types of cover are available, it is now time to decide which option will give you adequate protection in the future. Here are some questions to help you make this assessment.

Do you already have cover in place?

You may already have life cover or income protection provided by your employer under a group policy. If this is the case, it is worth determining what you are entitled to receive and if it is worth considering a more comprehensive standalone policy of your own.

There may also be a default amount of life insurance that has been provided through your superannuation. Again, it is worth assessing how much you stand to receive under a benefit payment as most policies will not provide an adequate level of cover to keep on top of all financial obligations. Insurance through super may not always have the same comprehensive cover offered from standalone policies and benefit payments to non-dependents can attract tax as high as 16.5%.

Workers compensation, employer or Centrelink benefits?

It is worth assessing what other benefits you may be entitled to from workers compensation or from your employer. In regards to income protection insurance, it is also worth considering how many sick days you have accrued. This may influence your decision on how long a benefit period to take out.

In the event of a claim, other benefits that the policy you are entitled to will be offset to the benefit paid from your insurer. This is to ensure that the injured or sick worker can not receive more than 75% of their regular income (an incentive to ensure the worker returns to work and reduce false claims).

What do you need to cover?

A crucial step in deciding what cover to take out is assessing what would need to be covered in the event of your death, injury or serious illness. This may include;

  • Rent and mortgage repayments
  • Financial dependents that you support now and would need support into the future
  • Daily living expenses i.e. food, petrol, clothing, entertainment, holidays
  • Education and childcare fees
  • Utility bills
  • Outstanding debt i.e. credit card debt, personal debt and any outstanding loans
  • Medical costs that may be incurred during illness
  • Modifications that may be required at home and workplace due to disablement
  • Funeral costs
  • Legal fees
  • Estate planning costs
  • Financial planning

Personal situation considerations

In addition to financial obligations to cover, it is also worth considering aspects of your own situation that may influence the decision to take out cover. This may be include;

  • Risks associated with occupation
  • Risks associated with pastimes i.e. participation in dangerous sports
  • Risks associated with preexisting medical conditions.

Buyers should be aware that cover for high-risk occupation, pastimes or existing medical conditions will often lead to a premium loading from most providers. Some insurers are more willing to work with people bearing certain risks so it is worth comparing different cover options available.

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Which Life Insurance policy is best for you?

Once you have decided what type of cover you wish to apply for, now is the time to choose between the different policies on offer. An insurance consultant can support you in this decision though it is best to get familiar with what aspects of a policy should be considered;

  • Sum-insured: What is the minimum and maximum amount of cover that can be applied for? This will be dependent on the insurer and type of cover applied for. As an example, funeral insurance will generally provide up to $30,000 in cover while Life Cover can be around $1, 500, 000. Income protection policies will also have a maximum monthly benefit that can be provided.
  • Sum-insured discounts: Some policies will offer premium discounts for large sums insured.
  • Policy exclusions: This is perhaps the most critical component of the policy as it will determine what events you will be entitled to a benefit payment for. This is especially important when reviewing medical conditions covered under trauma insurance.
  • How benefit is used: While most policies will let policy owners and or their beneficiaries use the benefit payment as they see fit, there may be some restrictions on this to be aware of.
  • Waiting period: Policies will generally offer a range of waiting periods on policies for cover to be provided. This can be anywhere from 2 weeks to 2 years.
  • Benefits and features: This will vary greatly between insurers. Important to review what benefits are built-in with the policy and those that are only available at an additional cost.
  • Payment frequency and discounts: Most policies will offer a range of different periods that payments can be made i.e. fortnightly, monthly or annually. Premium discounts will usually apply for less frequent repayments.
  • Definition of Disablement: Definitions of partial disablement and total and permanent disablement will vary greatly between insurers. It is worth reading further into how disablement is treated by insurers here.
  • Fees: It is worth reviewing what fees you can expect to pay on the policy each year. This can include an annual policy fee (generally between $50-$70), and stamp duty (can vary between 0%-11% depending on state).
  • Discounts: There may be discounts available for premium frequency, policy owner loyalty or for taking out a joint policy.
  • Premium patterns: Most policies will provide either stepped or level premium patterns though some providers will also allow for blended premiums.
  • Benefit indexation: Insurers will usually increase the sum-insured to account for inflation. It’s worth reviewing how much this is increased by (usually 5%).
  • Cancellation of policy: It is worth reviewing policy cancellation conditions and the cooling off period. The cooling off period is the period of time that the policy owner has to opt out of the policy once cover is put in place (generally between 28-32 days)
  • Occupation: Most policies will have exclusions in place for certain benefits and features for different occupation classes. There may also be restrictions around how much cover can be taken out.
  • Price: It is important to get an understanding of how much you will be paying for your cover over the life of the policy. Buyers should be careful to not be drawn in by the preliminary quote that is provided as it can change quite drastically following medical underwriting and how the policy is structured.
  • Cover within superannuation: In addition to self-ownership, you may choose to structure your life insurance plans through a complying super fund.
  • Claims process: It is worth learning about the providers process for claiming cover. Most providers will have this information on their website.

As can be seen from the list above, there are many different aspects of a policy to consider when reviewing different plans. It is always worth reading through the Product Disclosure Statement and speaking to your insurance consultant about any components that are not clear before applying.

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Which life insurance company should I choose?

The Australian insurance market is made up of a range of different insurance providers including insurance companies, general insurance companies and friendly societies. Among them there is literally hundreds of different policy options that can be purchased either direct (straight from the insurance provider) or through an insurance consultant.

Should I consider insurance from a direct provider?

Direct insurance is a smart option for people that know what type of cover they are after and are eager to get it in place quickly and avoid a long application process. Cover can be put in place online or over the phone and it is generally only available to low risk applicants that do not require additional medical underwriting.

Some life insurance companies will now provide a suite of direct insurance products in addition to their advice based products.

Tips for choosing between life insurance companies

  • Other policies held with provider: Some providers will give premium discounts to applicants that already have other policies in place with them.
  • Policies on offer: Obviously the types of policies on offer will play an important role in deciding what insurer to go with.
  • Awards received: It is worth reviewing awards that the insurer has received for their different products and also as a company. The Australian and New Zealand Institute of Insurance and Finance and the annual Money Magazine Awards are a good place to start for this.
  • Financial strength: It is always best to take out a policy with a company with proven financial strength and a solid reputation within the insurance industry. Life Insurance policies can last for many years and the last thing you need is for your provider to go bankrupt.
  • Reviews from current and past policy owners: It is worth reading up on reviews from people that have previously held policies with the company, especially those that have undergone a claim. It is always best to read a range of reviews and not let your opinion be swayed by one spiteful policyholder or claimant.
  • Reviews from industry publications: It can be helpful to read through reviews from known industry commentators.
  • Credit ratings: All life insurance companies are given a rating for their perceived financial strength issued by an independent credit ratings company. This rating is based on the company's capability to meet claims as they arise, nature and provisions of the policies offered and the protection in place for policyholders in the event of bankruptcy.

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Coverage is the amount of money that you will be paid in the event of a claim. An insurance consultant can help you determine an appropriate amount. Calculator
Provides a lump sum payment if you become totally and permanently disabled and are unable to return to work.
Provides a lump sum payment if you suffer a serious medical condition. Cover can be taken out for 40-60 medical conditions depending on the policy you choose.
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Compare Life insurance quotes from these direct brands

Name Product Maximum cover Maximum Entry Age Minimum Sum Insured Guaranteed Future Insurability Expiry Age Short Description
No expiry age as long as premiums are paid
Get a refund of 10% of the premiums you've paid (in the first 12 months) with The Real Reward™.
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Get life cover up to $1.5 million. Plus, ahm health members can save 10% off premiums.
Receive a 10% discount on the second person when two applications are submitted at the same time, and both policies are issued.
No expiry age as long as premiums are paid
Get life cover up to $1.5 million. Plus, Medibank health insurance members can save 10% off premiums.
Tailored life insurance so you know what you're covered for upfront. Take out a policy and get a $100 bonus gift after holding cover for 2 months. T&Cs apply. Ends 30 June 2019.
Protect what matters with a new Virgin Life Insurance policy. If eligible, you can earn 25,000 Velocity Points. Ends 1 July 2019. Min $80/month, min. 6 month policy to earn Points.
Receive one month's premiums off every year if you pay annually upfront. T’s and C’s apply.
No expiry age as long as premiums are paid
Cover up to $1.5 million with Guardian Life Insurance.
Get flexible life insurance up to the sum of $2,000,000.

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