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Why is life insurance important to have?

3 reasons why life insurance is worth it.


Fact checked

Let's be honest, life insurance is not a sexy topic. It's often brushed aside because we don't know for sure whether it really is worth it. Some of the common responses that you've probably heard from friends or family or in the news may include:

On the surface, these arguments sound strong, so we've decided to address each below. Have a quick look before you completely dismiss getting covered.

1. It's too expensive/it's a rip-off

As a general guide, $500,000 of cover can cost just under $28.56 a month for a 30-year-old male. At first, this may seem like an unnecessary expense, but it's worth considering the not-so-obvious costs of a life-changing event like death or a career-ending disability and comparing it to this monthly expense.

2. It's pointless unless you have dependents

In a 2018 survey, NobleOak found that over 70% of Australians didn't believe life insurance could cover you from things like heart attack and stroke. A similar amount (69%) didn't think they could be covered for income and over half of respondents (53%) didn't realise terminal illness was actually covered.

The truth is, many policies have the option of covering:

  • Life changing illnesses, for example, if you survive cancer, a heart attack or something similar (Trauma cover)
  • Injury or illness that interferes with your ability to work permanently (TPD cover)
  • Injury or illness that interferes with your ability to work temporarily (Income protection)

3. It doesn't pay out when it comes time to claim

Life insurance has been in the news lately for poor claim outcomes, which has lead many consumers to think that life insurance won't pay out when it really matters. But the reality is that 90% of claims that go to decision are paid out the first time around. Many of the situations where payouts are denied are avoidable. Some quick tips we recommend:

  • Declare all pre-existing medical conditions and be wary of "automatic acceptance" policies.
  • Understand that the cost of life insurance will increase as you get older unless you get "level" cover.

Want to compare life insurance?

Do Australian families have enough life insurance?

While superannuation life insurance has helped bridge the underinsurance gap, people need to be aware that this is only a default level of cover. You should assess whether the cover provided by your super is enough to provide financial security if you were to pass away. A 2015 report from Rice Warner showed that:

  • Typical default cover for young families is approximately 30% of what they actually require.
  • Typical default cover for those with no dependents is 60% of what they actually require.

When it comes to life insurance, you won't have a second chance to get a policy if you die. That's why it's worth reviewing your cover options.

Are our priorities correct?

The majority of Australians insure their car, but only a small number insure their life or their income. Meanwhile, around 20% of mortgage defaults are due to an injury or accident to someone in the household1.

Why don't we value life insurance?

Over 50% more Australians4 believe life insurance is the most expensive type of insurance than those who leave it's car insurance - when in fact this isn't always true:

So what do you value more?

A car

Cost of a car


How much will it cost in five years' time?

It's likely to depreciate

Cost of insuring a car

$97 per month2

Your income & your ability to pay obligations

Your current earnings

Let's say $72,000 per year

Costs to consider (average):

Mortgage size: $371,700

Cost of raising a child: $297,000

Cost of insuring your income

$86.66 per month or 2.8% of your income3

  1. Mortgage default in Australia: Nature, causes and social and economic impacts.
  2. Based on a Mazda CX-5, using the average cost of five insurers.
  3. Monthly cost is based on the average cost of premiums available through's quote engine.
  4. Based on a 2018 NobleOak survey of 1034 Aussies. Note: life insurance brands offer income protection insurance as a product)

Is life insurance a rip-off?

When it comes buying insurance, people often see it has losing money for something that is unlikely to happen. This all changes when something actually does happen.

Let's say you crashed your car. From that point on, you'll start seeing your car insurance payments as a contribution towards potentially replacing or fixing your car in the future, if you ever crash again.

When it comes to life insurance, you won't have a second chance to get a policy if you die. That's why it's worth reviewing your cover options.

parents-dont-need-life-insurance (1)

What are the costs of not having cover in place?

The loss of a family's main breadwinner can have a significant impact on the surviving family's life moving forward. Even if you are a stay at home parent performing ongoing home duties, you'll also need to consider the cost of a housekeeper to replace you.

Common costs to cover

  • Mortgage, credit card and other personal debt
  • Medical care if diagnosed with a terminal illness
  • Funeral expenses
  • Taxes
  • Education expenses
  • Bills
  • Food
  • Groceries

Costs to cover if you have dependents

People without financial dependents in place can still leave considerable financial debt to be covered by immediate friends and family. This may include:

  • Funeral expenses
  • Mortgage debt, credit card debt, other debt remaining on personal loans
  • HECS (university) debt owing on studies completed

TPD and Trauma should also be considered if you have dependents. These policies will offer protection if you are forced to take time off work due to serious illness or injury.

Life insurance in real life: A safety net following a tragic loss

Neal Frankle

Owner of Wealth Resources Group and the blog, Neal Frankle is what many would consider an inspiration. Frankle has overcome tragedy and many boundaries to neal-frankle-profileachieve financial and spiritual happiness.

Via his blog WealthPilgrim, Frankle shares a personal story with his readers to help them achieve their own personal and financial goals. From a young age, Neal recognised the importance of financial security for living a life of happiness, free of stress. After the passing of his parents at the age of 17, Frankle found himself homeless and broke until he received a death benefit from his parents' life insurance policy.

So how did Neal Frankle turn his life around and become the owner of a successful financial company and a renowned blog? Neal sat down with writer William Eve to tell his story.

Neal Frankle is a Certified Financial Planner working with people who want to make smart decisions about their money, so they don’t have to worry.

Types of life insurance to consider

In addition to life cover, there are other forms of insurance to consider to ensure the right level of protection is in place. These types of "living insurance" can offer support if the policyholder is forced to take time out of work after suffering an accident or illness.

Income protection insurance

  • Provides an ongoing monthly benefit of 75% of the policyholder's regular income if they are forced to take time out of work due to serious illness or injury.
  • Additional benefits can cover rehabilitation expenses that may be incurred as the insured person recovers.
  • Additional benefits can cover professional nursing care expenses if required.

Trauma insurance

  • Provides a lump sum payment to cover costs incurred if the policyholder suffers a trauma condition as specified by the provider. This may include stroke, cancer or open heart surgery. These conditions will vary from provider to provider.
  • Trauma cover can often be bundled into the policyholder's life cover.

Total permanent disability (TPD) insurance

  • Provides a lump sum benefit if the policyholder is forced out of work due to disablement.
  • Definitions of "disablement" vary between providers. It's essential for applicants to review in what circumstances payment is provided.

Steps for finding suitable cover for your situation

One major determent of people taking out cover is the price. Many feel they simply do not have enough in their budget to keep on top of ongoing premium payments. Here are some tips for making your cover more affordable.

  • Research: Take the time to research the different options available. There are hundreds of different products available on the market offering different levels of cover at different prices. Find cover with features and benefits relevant to your situation and ensure the premium payments reflect what is provided.
  • Consolidate life cover from your super funds: You may already have some life cover held in different super plans. Consolidating this cover into one fund can help you save a considerable amount in fees.
  • Joint life cover options: Some providers will offer joint policy discounts if you are looking to take out cover for your spouse.
  • Speak with an insurance consultant: An insurance consultant can compare hundreds of different policy options on the market to help you find premium discounts.

Compare life insurance quotes from these direct brands

Name Product Maximum Cover Maximum Entry Age Minimum Cover Terminal Illness Benefit
NobleOak Life Insurance
Real Family Life Cover
Get a refund of 10% of the premiums you've paid (in the first 12 months) with The Real Reward™ .
Medibank Life Insurance
You could win a $2000 Gift card when you get a Life Insurance quote by 30 August. Winner drawn fortnightly. Plus, Medibank health members save 10% every year. T&Cs apply.
ahm Life Insurance
ahm Health members can save 10% off premiums.
Zurich Ezicover Life Insurance
Get your first month free. T&Cs apply.
Guardian Life Insurance
InsuranceLine Life Cover
Get a $100 bonus gift after 2 months. Plus, and get 12 months cover for the price of 11 if you pay annually. T&Cs apply.

Compare up to 4 providers

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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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