Do You Need Life Insurance?

By Olivia Gee ·

As the old saying goes, there are two things you can count on in life: death and taxes. Life insurance is all about planning for the former (even if it’s not really pleasant to think about).

The most common kind of life insurance you'll come across in Australia is known as 'term life insurance policy', which pays out a lump sum when you die. This money can help your family to sort out their finances when you’re gone, including covering funeral expenses, mortgage repayments, or simply the costs of living.

So if you think your family might need a helping hand when you're gone, then it might be time to consider a life insurance policy. Below some of the policy options available right now, we’ve broken down who should invest in one of these policies, and why it’s important.

Life Insurance Comparison Table - last updated November 28, 2020

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    Who should have life insurance?

    Life insurance is a good choice for many different types of people, including...

    The breadwinner

    You are... the main provider for your family. Without your paycheck, your household would struggle to meet monthly expenses.
    You need life insurance as a sort of income replacement strategy. If you pass away, your life insurance payout will help your family to cover living costs that your salary would have otherwise covered.

    A divorced parent

    You are… a caregiver who has been through a divorce and now pays child support.
    You need life insurance so your child can continue to benefit from money that you would have otherwise paid in child support.

    A stay-at-home-parent

    You are… a parent who stays at home to look after children and run the household while your partner goes to work.
    You need life insurance because if something happens to you, all the work you do at home, including childcare, will need to be done by someone else. That means your spouse may have extra costs to cover.

    A special-needs parent

    You are… the parent of a child who has a disability or special needs that impact your finances.
    You need life insurance because depending on your child’s disability, they may not be able to work or support themselves when you’re gone. A good life insurance payout can be part of the financial support they need.

    Homeowners with a mortgage

    You are… paying off a mortgage on a property. Your paycheck might cover the entire repayment amount, or only a portion of it.
    You need life insurance to cover the mortgage repayments so your family doesn’t have to stress about finding extra funds or leave their home if you die.

    Someone with shared debt

    You are… repaying debt on a credit card or personal loan someone else would be responsible for paying off if you died. For example, if you share a credit card with your spouse.
    You need life insurance to clear that debt, so your loved ones don’t have to try to meet repayments, or to meet the portion of the repayments you would have been responsible for.

    Business owners

    You are… the owner or part-owner of your own business.
    You need life insurance because it can help to tie up any loose ends after you pass away. Maybe that means paying off any business debts, helping your successor get the business under control, or facilitating a buy-sell agreement for your business partner to buy out your share of the business.

    Someone who wants to pay for their own funeral

    You are… planning ahead! You might be worried about how your family will cover the cost of your funeral or any other final preparations after you pass away, or you may not have anyone to make to make those arrangements for you.
    You need life insurance to make sure you've taken care of that final cost while you can. It will take that financial burden off your loved ones’ shoulders, or it will mean the executor of your estate will be able to do their job effectively. You could also opt for funeral insurance.

    Types of life insurance

    There are a few different types of life insurance to consider, and each one might be better suited to people in different situations. These include:

    Term life insurance - also known as 'life cover' or 'death cover'. This insurance is one of the most common in Australia and pays a set amount when you die.

    Total and permanent disability (TPD) cover - these policies pay a lump sum if you’re ever permanently disabled. It can help with rehabilitation or living costs, and often comes bundled with a term life insurance policy.

    Income protection cover - this is insurance designed to replace any lost income if you aren’t able to work for a period of time. You can read more about it in our income protection insurance guide.

    How much life insurance do I need?

    Choosing to get life insurance is one thing - choosing what level of cover you need is a whole other kettle of fish. Usually, the main consideration is how much money your family might need to cover expenses without you around.

    You should also consider the term of your life insurance. Generally, the cut off age for buying life insurance is 59-75 and the policy will last until you’re 99 years old.

    Basically, you should work out what your annual expenses are, and how much of those are covered by your salary. Then, work out how many years there are between when you buy your policy and retirement age. Calculate a cover level that will cover costs for those years.

    Check out our dedicated guide for a full rundown on how to decide how much life insurance you need.

    Choosing a term

    When you buy a life insurance policy, you’ll need to nominate a timeframe you want to be covered for. For example, you might buy it when you’re 35, and want it to cover you until you retire at 65.

    It’s important to choose a long enough term, because while you can usually buy a policy up until you’re about 65 years old, and renew it up until you’re 99, if you need to buy a new policy later in life, it will be much more expensive.

    Another thing to keep in mind, is that as you get older, the maximum benefit amount you can claim on your life insurance will get lower.

    How to find a life insurance policy

    There are two main ways to get a life insurance policy. One is to take out life insurance through your superannuation. Sometimes, that’s as easy as ticking a box.

    Otherwise, you can go direct to an insurance company to choose a standalone policy that suits you. To make it easier to find the right match, you can head over to Mozo’s life insurance hub to find some of the best deals around at the moment.

    *Any information provided on this page should be considered a summary and general advice only. All information should be verified before purchase via the relevant Product Disclosure Statement (PDS).

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    Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.

    While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.

    Olivia Gee
    Money writer

    As one of Mozo’s money writers, Olivia Gee shares her research and insights across banking, insurance and property to help readers save. She loves getting stuck into a story, unveiling all the facts, breaking down stats and drawing on personal experiences - this is what drives her as a journalist. She has a double degree from the University of Wollongong, with a BA in Journalism as well as Media and Communications.