No one really likes to think about dying, or what happens when you’re gone, but when it comes to life insurance, it’s important to take a moment to think about it. Taking out a life insurance policy is about ensuring your dependents could meet their cost of living if you were no longer around to support them.
There are a range of life insurance providers in Australia and to help to narrow down your choice before you get a quote, you can use our table above to compare your options. But if you need a little more information to help you better understand some of the policy features and benefits before you get started, check out some frequently asked life insurance questions below.
The way life insurance works in Australia is, at the time that someone passes away, insurance providers pay out a lump sum to beneficiaries that are nominated by the insured person. In most cases, beneficiaries are immediate family members, and different insurance providers have varying limitations of how many people you can nominate on a single policy.
Some insurers also pay out people who have been diagnosed as terminally ill, so that they can cover any medical costs and get their financial situation in order.
The type of life insurance you’re seeking will determine what is covered under your policy. Here are the different types you can take out:
Life cover: This cover pays out your beneficiaries you’ve nominated on your policy a lump sum when you die.
What is term life insurance?
This is the standard type of life insurance, which pays a lump sum in the event of your death (typically up to age 99). With term life insurance you nominate an amount that you'd like to insure your life for. This amount can be used to cover things like your mortgage, children's education, debts, ongoing income for your partner and even funeral expenses.
How much cover will I need?
The amount of life insurance cover you need will depend on your own personal financial circumstances and budget.
Life insurance is designed to cover expenses that your income otherwise would have covered. So when working out the amount of cover you need, make sure you consider things like:
- Mortgage repayments and other debts like a car loan
- Future education expenses for your dependents
- Funeral expenses for yourself
- Everyday living expenses for your partner or family. Remember that you should calculate living expenses for the rest of the time that your family would have been dependent on you.
- Future major purchases that your income would have helped with, like a home, car or renovation
Rather than simply going for the cheapest option, you should really look for a policy that will cover your family and their lifestyle. According to some insurance experts, if you've got dependents you should look at cover that is equal to 10 times your income.
If you need help with the calculations, head over to Mozo's Budget Calculator.
When should I buy life insurance?
The million dollar question: when do I actually need to take out a life insurance policy? There are a few things to consider that can help you pinpoint the right time to start looking seriously at life insurance:
- Life insurance premiums generally increase the older you are, so it’s a good idea to take out the policy when you're healthy, before you have any known pre-existing medical conditions that could affect your likelihood to get cover.
- It's a good idea to take out life insurance as soon as you have major financial commitments like a home loan or you have dependents that rely on your income. So once you start a family, life insurance is a great next step.
The important - and tricky! - thing is that you actually need to start thinking about life insurance before you need it. Don’t wait for disaster to strike before finding the right policy for you, because that’s exactly the kind of situation your life insurance is designed to protect you from.
How do I pay for life insurance?
The person who holds the life insurance policy pays premiums to their insurer, usually on a monthly or annual basis This can be either in the form of stepped premiums, which means that every year your insurer increases the amount you pay because you are getting older (and generally your premiums are more costly, the older you are), or level premiums.
Level premiums mean you’ll pay the same amount while your insurance policy is active and the premium cost depends on how old you were when you first took out your policy. In some cases you can pay level premiums up until a certain age and then you’ll need to pay stepped premiums thereafter.
Will I need to have a medical examination prior to taking out a policy?
Worried that taking out a life insurance policy means getting poked and prodded, measured and weighed? Don’t be! In most cases, you won’t need to have a medical examination.
Usually, medical testing would only be necessary if you’ve had a preexisting condition or a family history of poor health and it’s very important that when applying for life insurance that you’re upfront about your past medical history.
Even if you've had a preexisting condition, it doesn't automatically mean that you won't be able to take out life insurance. In some instances you might need to pay extra or have a policy with special conditions attached. But keep in mind it is ultimately up to the life insurer whether they will require you to undergo medical testing or not.
Is life insurance through my super or a standalone policy better?
That’s really up to you - different options are better for different people. To help you decide which is right for you, here’s a super quick rundown of the pros and cons of each option.Life insurance through your super
- Often cheaper than a standalone policy and won’t affect your day-to-day budget, as it’s taken out of money you don’t have access to anyway.
- Doesn’t always offer the same level of cover as a standalone policy, and eats into your retirement fund - you’ll need to plan for this in your long term savings strategy.
- Often offer more features and better coverage, plus you get the option to shop around and find the policy that’s right for your needs and budget.
- Often more expensive than insurance through your super, plus, it means you do have to do the work of choosing the right policy.
For a full look at the differences, check out our guide to super life insurance vs standalone policies.
Does life insurance include income protection and disability insurance?
Many life insurance policies come with the option of total and permanent disability insurance. This policy covers you in case you wind up not being able to work again, either in any occupation, or in your usual occupation, depending on your policy.
Income protection insurance, on the other hand, usually involves a separate policy. It’s insurance designed to cover your bills, loan repayments or other expenses if you lose the ability to earn income - whether through injury, illness or some other events. One top tip: you'll often receive a discount for taking out multiple policies with the one insurer, so it’s worth thinking about getting them all in one place.
Where can I get a life insurance policy to suit my needs?
Right here! Head up to our life insurance comparison table above to start comparing the features and benefits of different policies to find the right one for your needs.
If you're after more information on life insurance we've also got a range of guides that go over the basic types of cover and information you'll need when choosing life insurance cover. And if you want to know more about the industry in general, check out our life insurance news section.
How do I apply for life insurance?
There are a few different ways to buy life insurance. You can go through an advisor or find it yourself and apply online or over the phone.
If you are finding it hard to figure out exactly what you need to be covered for, seeking life insurance through an advisor may be the best option for you. This way you’ll be given expert help when comparing policies to suit you, but you’ll be subject to an advisor’s fee.
You may feel like you’re up to the task of finding your own policy, so in this case you can simply apply online or over the phone. Be ready with information like your personal details, job type, income amount and how much you want covered.
Alternatively, you may be unaware that you are receiving life insurance through your superannuation. While this cover is cheaper, and may cover the basics you need there are often more limitations so standalone cover may suit your particular situation better.
Can I cancel my life insurance?
Yes, you can cancel your life insurance however, your insurer will not refund the premiums you’ve already paid. Some life insurance policies come with a cooling off period, where you can opt to cancel up to 30 days after you purchased the policy and you will be refunded.
Keep in mind, once you cancel your life insurance you won’t be covered anymore even if you’ve already paid some premiums up until cancellation.