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Do You Need Life Insurance?

Parent and child looking at computers, considering life insurance.

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 - rates updated daily

Search promoted life insurances below. Advertiser disclosure. Important information on terms, conditions and sub-limits.
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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.

Do you need life insurance infographic about salaries.

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.

Olivia Gee
Olivia Gee
Money writer

As a personal finance writer at Mozo, Olivia investigates insurance, banking and property. After completing a double degree in journalism and media and communications, Olivia became a lifestyle editor at Time Out Sydney and freelanced for notable publications such as Guardian Australia and SBS News. Now she is Mozo’s resident car insurance enthusiast, and is certified (ASIC RG146 Tier 2) to provide general advice in general insurance. She also creates audible finance adventures as co-host of Mozo’s podcast, The Finance Burrito.

* Terms, conditions, exclusions, limits and sub-limits may apply to any of the insurance products shown on the Mozo website. These terms, conditions, exclusions, limits and sub-limits could affect the level of benefits and cover available under any of the insurance products shown on the Mozo website. Please refer to the relevant Product Disclosure Statement and the Target Market Determination on the provider's website for further information before making any decisions about an insurance product.

^See information about the Mozo Experts Choice Life Insurance Awards