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What is whole life insurance?

Man sitting and thinking about his life insurance coverage

Having a financial plan to look after your family when you can’t anymore is a hard but important conversation to have. This is where life insurance can help step in.

Life insurance is designed to provide a lump sum benefit when you die or are diagnosed with a terminal illness. What kind of coverage you can have depends on your age, health, and lifestyle, and there are a few types of policies to choose from.

But life insurance coverage used to look different in Australia. So what is whole life insurance? And what do we have now?

Whole vs. term life insurance

Woman reading about whole vs. term life insurance on her laptop.

In Australia, you used to be able to buy a policy called whole life insurance. Also known as traditional life insurance, this kind of policy covered the policyholder for their entire lifetime. 

Whole life insurance also had an investment component – part of your premium was stored in a high-interest savings account for the duration of your coverage. The cash value would accumulate over your lifetime until it was paid out after your death. The cash could also be exchanged for the ‘surrendered’ policy at your request. 

Fun fact: the interest on this type of account was sensitive to the Reserve Bank cash rate. In a high interest rate environment, savings grew a lot. When interest rates were low, it didn’t. 

Unfortunately, whole life insurance is no longer available in Australia. It was replaced by mandatory superannuation in 1992. Now, the kind of life insurance available in Australia is term life insurance. These policies usually only cover you up to age 99.

List of differences between whole and term life insurance

The main advantages of term life insurance over whole life insurance Australians can enjoy include:

  • Coverage flexibility. Term life insurance can be adjusted as your lifestyle or needs change, depending on your eligibility. For example, if you get married, divorced, have children, or retire, your provider can adjust your sum insured and death benefit so that you’re not over or underinsured
  • Cost-effective value. Because you’re not paying extra for the ‘investment’ component of whole life insurance, term life insurance is streamlined to only pay for insurance. Your investments are left to superannuation and any other assets in your portfolio, like property.

Some Australians may still hold a valid whole life insurance policy, but these will likely have been taken out before 1992.

Is life insurance worth it?

Woman researching whether life insurance is worth it.

Life insurance has pros and cons to consider, like any financial product. Some of the main pros that could make life insurance worth it include:

  • A lump sum to help you pay for end-of-life care or look after your family when you’re gone. For instance, this money can help clear debts, pay off your mortgage, or look after your children.
  • Potential tax benefits since you can sometimes claim the premiums income protection and total & permanent disability policies as deductions. Speak to a tax professional about your eligibility.
  • Peace of mind since you have a plan in place to take care of financial matters when you die. 

Keep in mind that there are some cons, too. For example, your provider may slap you with a high premium if you are a smoker or work in a dangerous industry. Part of the process is working out how much life insurance you need

All policies will have terms, conditions, and exclusions, as well, so always read the product disclosure statement (PDS) before signing up.

Like all types of insurance, life insurance is value-based, not price-based. A policy is only worth the money when the value it gives you for coverage matches the premium you’re paying. Comparing life insurance quotes can give you a good idea of what value is available to you.

Compare life insurance policies in the table below.

Compare life insurance policies

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Last updated 22 July 2024Advertiser disclosure
Important information on terms, conditions and sub-limits.
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    Life Insurance

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    Premium Life Direct Income Protection Insurance

    Income Protection – Mozo 2024 Exceptional Value Income Protection winner* Financial protection for you and your family if you suffer a sickness or injury and are unable to work. Premiums are generally tax-deductible, speak to your accountant to see if this applies to you. General advice only, see website for T&Cs, PDS and TMD.

* 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

Evlin DuBose
Evlin DuBose
RG146
Senior Money Writer

Evlin is RG146 certified for Generic Knowledge and has become a leading voice in finance news since joining Mozo two years ago. She is regularly featured in Google's Top Stories alongside major publications like News.com.au and Yahoo Finance, and seasoned journalists. Despite being in the industry for just two years, she is Mozo's go-to writer for all things RBA and her research has been referenced by the Victorian Government. With a Bachelor of Communications degree from UTS, where she won the Dean's Merit Award and acted as the Director of Student Publications.