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What is life insurance?

Life insurance is designed to provide a financial safety net if you were to:

  • pass away or become diagnosed with a terminal illness
  • become seriously injured
  • become permanently disabled.

During difficult times, this type of insurance can offer a lump sum of money that could help your family afford their debts (e.g. their home loan) and living expenses (e.g. school fees) – even if you weren’t able to support them.

So, how much life insurance do you need? It’s simple enough; you need to be insured for the amount required to maintain the lifestyle your family has grown used to.

For some, this means getting insured for the difference between two variables. The first variable is what your family receives in:

  • superannuation and insurance payouts
  • dividends from shares
  • savings.

The second is any debts or living expenses they might have to pay.

You can estimate the level of cover you should consider with our life insurance calculator. Otherwise, if you want to learn more, here’s life insurance explained.

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Learn more about life insurance

TPD insurance

If an incident leaves you disabled and you’re unable to work in your occupation, Total and Permanent Disability (TPD) insurance pays a sum of money to support you. Depending on the TPD cover you take out, it may provide a payout if you cannot work in any job.

Trauma insurance

Trauma insurance policies (also known as critical illness or recovery insurance) is designed to support you if you’re diagnosed with a serious medical condition (e.g. cancer, heart disease). This type of policy could pay a lump sum of money to help you pay for those medical bills, as well as cover your recovery time away from work.

Funeral insurance vs life insurance

Funeral insurance can ease the financial pressure during an already stressful time. This type of cover helps your family pay for your funeral costs, up to a limit; this can include the coffin, burial, cemetery plots and more. Learn about this type of cover and how it differs from life insurance.

Life insurance for families

While an individual policy only insures one person, life insurance for families can cover you, your partner and even your children. This policy pays a lump sum of money to your beneficiaries should any of the insured family members become terminally ill or pass away.

Life insurance for seniors

Australian insurers may offer life insurance to seniors between the ages of 60 and 75, while others may provide a higher maximum cover age. However, eligibility and premiums depend on your current health status and medical history.

Life insurance vs income protection

Generally, different types of life insurance pay one lump sum of cash. By comparison, income protection pays regular cash amounts of up to 70% of your income (salary + superannuation) while you recover from serious illness or injury and cannot work.

How to reduce your life insurance premiums

Want to spend less on life insurance? We outline four ways you may potentially reduce your life insurance premiums. These include modifying your current policy, changing your lifestyle, and comparing different options.

Own occupation vs any occupation

When purchasing TPD insurance, you can either have cover for not being able to work in (a) your usual occupation or (b) any suitable occupation. Learn about the pros and cons of both options, should you become permanently disabled.

Frequently asked questions

What is term life insurance?

Term life insurance could help financially support your beneficiaries (e.g. your family) if you were to pass away or receive a terminal illness diagnosis. This policy is a common type of life insurance offered by Australian insurers.

How does life insurance work?

When you take out life insurance, you sign a contract with an insurer and agree to pay the policy premiums regularly. In exchange, your insurer pays a lump sum of money to your listed beneficiaries (e.g. spouse, children) if you pass away, become seriously ill or injured or become permanently disabled in accordance with the policy’s Product Disclosure Statement (PDS). Life insurance must be purchased before any of these instances occur.

Life insurance either covers you for an agreed-upon term (e.g. for the next 10 or 20 years) or, for some insurers, until you reach a certain age. This type of cover is also usually risk-rated, which means your premiums will be calculated based on how likely you are to make a claim; as such, life insurance may cost more for high-risk individuals.

Also, you may need to sit through waiting periods before you can claim on your life insurance. Waiting periods will be clearly outlined in your Product Disclosure Statement (PDS).

How much does life insurance cost in Australia?

How much life insurance costs in Australia, on average, will vary between each person. The cost of life insurance is based on your age, gender, health, smoking status, occupation, lifestyle and other risk factors. How much your life insurance costs will also depend on the type of policy, what your policy covers, and whether you choose stepped or level premiums.

For example, you can typically lock in a cheaper rate with a level premium structure. However, level premiums typically still change in line with inflation (CPI) and generally change if:

  • your lifestyle or risk factors become different;
  • you alter your policy; or
  • you reach a certain age (usually 65).

On the other hand, a stepped premium usually starts out cheaper than a level premium but gets more expensive as you get older. You may wish to consider whether you’d prefer cheaper premiums now (stepped) or more affordable premiums over time.

To determine how much life insurance may cost you, you can compare life insurance quotes using our online comparison service.

Do I need life insurance?

This is a decision you’ll need to make based on how you believe your family will cope financially if you weren’t able to support them.

Specifically, you may need to consider how your family could fare if they needed to pay off debts or cope with regular expenses without your income.

Life insurance also allows you to leave an inheritance to help your children get ahead if you’re no longer around.

You’ll need to take out a policy before a covered event occurs, like a severe injury, for example. So, if you become seriously injured and then take out a life insurance policy, you wouldn’t be able to claim this injury on your cover.

It’s also worth noting that many superannuation funds include a level of life insurance. Unsure if you already have life insurance through your superannuation? Call up your super fund to check, as that cover may be insufficient for your needs.

Four reasons why Aussies may choose to take out cover?

If you’re wondering if life insurance is worth it for you and your family, consider these four reasons why Aussies may take out cover:

  1. changing circumstances. Having kids or buying a house means you have more financial responsibility, and your support means a lot more to others who depend on you;
  2. protecting their family from debt. You don’t want to leave your family struggling to pay for rent, mortgage repayments or utility bills to keep the hot water on and a roof over their heads;
  3. maintaining their family’s lifestyle. If you’re no longer around or are terminally ill, you want your family to continue living comfortably, which means being able to afford food, schooling, childcare costs and even entertainment; and
  4. cover may cost more later. Because the cost of life insurance is based on your risk of making a claim, it may cost more to take it out when you’re older and have a potentially higher chance of passing away.

Remember: each person’s circumstances are unique, so you should make your decision based on what’s right for you.

Can high-risk individuals get life insurance?

Even if you are more likely to claim on a life insurance policy than someone else, you may still be able to take out cover. However, life insurance for high-risk individuals will usually cost more.

To determine if you’re a high-risk individual, and how much you’ll pay for such a policy, insurers will typically assess your occupation, health, lifestyle and hobbies.

Some examples that may categorise you as a high-risk individual include:

  • smoking
  • regularly engaging in extreme sports or risky hobbies (e.g. skydiving, car racing, scuba diving)
  • working in a dangerous occupation or job (e.g. doctor, firefighter, mine worker)
  • poor health due to a pre-existing medical condition or disease (e.g. cancer, diabetes, depression, anxiety).

high-risk workers covered by life insurance

Do women pay less for life insurance?

Women’s life insurance may cost less than men’s because – compared to men – they:

  • typically have a longer life expectancy
  • may have better health.

Insurers will consider these factors when they’re calculating life insurance premiums for women.

That said, all risk-rated insurance products are priced based on the risk of the individual, male or female. So, if a woman leads a risky lifestyle, is older, or has medical conditions that might lead to a claim in the future, there’s every chance she may pay more for life insurance than a man who is considered ‘less risky’.

If you’re curious about what you’ll pay for life insurance, one of the easiest ways to find out is to get a life insurance quote using our comparison service.

Is life insurance tax deductible?

No, you can’t claim any tax deductions for life insurance premiums. However, income protection insurance premiums can be tax-deductible, as it protects against loss of income; not life. You should talk to a qualified tax specialist to determine what you’re able to claim on tax each financial year.

Please note: This information is provided for information purposes only and does not constitute tax advice.

What types of optional benefits come with life insurance policies?

Life insurance optional benefits typically cost extra to add on and generally need to be underwritten into your policy during the application phase.

Some common features include:

  • bundling policies. Bundling your life insurance policy with TPD insurance and trauma insurance policies through the same insurer can generally make your premiums cheaper;
  • life buy-back option. Let’s say you’ve bundled your policies together (as mentioned above) and you make a TPD claim. The payout you receive from your TPD claim could be deducted from the total life insurance payout amount you’re entitled to. This buy-back option lets you restore your life insurance payout to the original amount before you made your TPD claim;
  • funeral advancement. If the insured person passes away and the beneficiary provides a death certificate to the insurer, they can receive a portion of the life insurance payout (up to a limit) in advance to cover funeral costs;
  • Guaranteed Future Insurability (GFI). This ensures your cover changes if your life changes significantly, such as if you get married or divorced, buy a house or have kids. GFI ensures your sum insured increases enough to cover you for your new circumstances, without having to repeat health checks or submit another application;
  • pause life insurance option. You may be able to pause paying your premiums for a limited time (listed on your PDS) if you’re experiencing financial hardship (e.g. losing your job). However, this means you won’t be covered if anything happens during this period; and
  • life insurance premium relief. This could waive your life insurance premiums if you’re unable to work for a specified time (listed on your PDS) due to accident or illness. However, this waiver will stop when you return to work or start making a regular income.

What is a life insurance policy rider?

‘Riders’ are optional features that you can add to your life insurance policy. Although policy riders cost extra, they provide you with additional life insurance coverage; including accidental death, illness contracted from a needle, costs for further rehabilitation and home bed care, and life insurance coverage for children.

However, you may not be able to attach riders to your life insurance policy if the insurer considers you particularly risky to insure (e.g. if you’re over a certain age, employed in a high-risk field).

How much extra a policy rider might cost largely depends on your existing level of risk. You’ll have to decide if the extra expense is worth the additional cover, and ask your insurer what the price difference could be.

Not every insurer offers every single type of policy rider, but here’s how some policy riders work:

  • child cover pays a sum of cash if your child dies, or falls terminally ill;
  • additional rehabilitation helps with the costs of ongoing or extra rehabilitation sessions;
  • home bed care helps pay for the cost to get a proper home bed care if you’re incapacitated;
  • accidental death cover: your beneficiaries (e.g. dependents) may receive a cash payout if you die from an accident;
  • needlestick injury cover provides a payout if you’re pricked by a needle and contract an illness. This type of cover is commonly found in insurance policies for healthcare workers;
  • waiting period waiver: if you can’t claim on your life insurance due to waiting periods, this rider may ensure a lump sum payout without needing to sit your waiting period; and
  • premium waiver: if you’re unable to work six or more months due to a significant disablement, your insurer may waive your premiums.

If you want to add a life insurance policy rider to your cover, ask your insurer what they offer.

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