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.)
In general, life insurance in Australia is sold as a “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 - and your paycheck - are gone, then it might be time to consider a life insurance policy. Below, we’ve broken down who should invest in one of these policies, and why it’s important.
Life insurance is a good choice for many different types of people, including...
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.
You are… a mum or dad who has been through a divorce and now pays child support.
You need life insurance so that your child can continue to benefit from money that you would have otherwise paid in child support.
You are… a mum or dad 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 will need to be done by someone else. That means your spouse may have extra costs to consider, such as childcare.
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.
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 that your family doesn’t have to stress about finding extra funds or leave their home if you die.
You are… nursing debt on a credit card or personal loan that 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 that 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.
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 it could help facilitate a buy-sell agreement for your business partner to buy out your share of the business.
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.
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 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.
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.
When you buy a life insurance policy, you’ll need to nominate a term that you want it to cover you 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.
There are two main ways to get a life insurance policy. One is to take out life insurance through your super. Sometimes, that’s as easy as ticking a box.
Otherwise, you can go direct to an insurance company to choose a 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.
If you’re not sure whether super life insurance or a standalone policy is right for you, check out our guide