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For many Australians, life insurance is a vital risk management tool intended to provide financial security for themselves and loved ones in the case of illness, injury, disability, or death.
However, with over 20 life insurance providers (as of June 2021) and a range of policies to choose from in Australia, comparing policies can be quite time-consuming.
Individuals looking for the best life insurance coverage should consider their individual needs, including current life stage and the level of coverage required.
This article provides valuable guidance as to the different life insurance types, life stages, and factors that affect insurance premium costs, in addition to discussing policy benefits that can assist you in identifying the insurance type that best suits you.
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- For many Australians, life insurance is a vital risk management tool intended to provide financial security for themselves and loved ones in the case of illness, injury, disability, or death.
- Types of Life Insurance and Sales Channels
- How Life Insurance Helps You and Your Loved Ones
- How to Buy Life Insurance in Australia
- The Right Time to Buy Life Insurance
- What to Check Before Buying Life Insurance
- What Affects the Cost of Life Insurance?
- How Much Life Insurance Should You Get?
- When Will Life Insurance Pay Out?
- Who Can Apply for Life Insurance?
- Is Life Insurance Right for You?
- How Many Life Insurance Policies Can You Purchase?
- Cancelling Your Life Insurance
- References
Types of Life Insurance and Sales Channels
The following are the different types of life insurances you can purchase in Australia:
- Death cover: Pays a fixed lump sum upon your death. This insurance cover will provide the benefit to the individuals you nominate as beneficiaries.
- Total and permanent disability (TPD) cover: Pays a lump sum when you become totally and permanently disabled. You may use this money to help with rehabilitation and living costs. TPD is usually sold with a life insurance cover policy.
- Income protection insurance: Replaces your income when you cannot work due to illness or injury, with a certain percentage of your ordinary wage covered by the policy.
- Trauma cover: Provides a lump sum in circumstances where you suffer a severe injury or are diagnosed with a critical illness, such as stroke, cancer, or heart attack.
You can apply for life insurance policies through the following sales channels:
- Superannuation fund: Your super fund may provide you with a default life insurance cover or offer provisions that enable you to increase the coverage amount.
- Financial adviser: A financial adviser typically recommends life insurance products that may or may not be offered by your superannuation fund.
- Insurer: You can also purchase a life insurance policy directly from the insurer. Unlike financial advisors, insurers do not provide general or personal financial advice.
Some employers may offer group life insurance to their employees. This particular insurance covers all employees in a single contract.
Ask the Australian Prudential Regulation Authority (APRA) for additional information on group insurance claims and their data collection.
How to Compare Life Insurance Cover
With so many insurers and different insurance products on the market, it is important to consider the following questions when purchasing an insurance policy:
- Will your loved ones maintain their current living standards if you pass away?
- Can your family afford its future goals?
- If you become permanently disabled, how will your family pay debts and living expenses? If you have no family, who will take care of you?
- How long can you continue paying your bills without a regular income?
- Can you afford home renovations if you suffer a serious illness or injury? How will you pay for any long-term rehabilitation costs?
- Can you afford to pay your ongoing premiums?
Comparing Life Insurance at Every Stage
Taking into consideration both your current and future life stages is important when deciding on the right life insurance type and the amount of cover you may need. These stages reflect your financial situation and personal circumstances and may be categorised into the following:
- Young and single: At this stage, young adults are only at the commencement of their responsibilities and life journey.
- Young couples: The emphasis is on expanding your goals and financial obligations while protecting yourself and your partner.
- Young families: Your priorities are more focused on expanding and securing responsibilities for your family.
- Maturing families: Your focus is on securing your wealth as you reach stability in your career. Your children are getting older, and your household income reaches its peak at this stage.
- Empty nesters: Your priority is on utilising your hard-earned wealth to support your newfound free time and lifestyle.
Talking to a financial adviser or Life Insurance Specialist to obtain a life insurance quote for a policy that may fit your current life stage needs is beneficial to secure the best policy for you.
How Life Insurance Helps You and Your Loved Ones
While your reasons for getting life insurance may vary from other individuals, life insurance can provide you with the following benefits:
- Peace of mind: Having life insurance can provide peace of mind, knowing your loved ones are financially secure moving into the future.
- Covers debts and major expenses: The right life insurance can help ensure enough money is available to pay for significant expenses, like mortgages, loans, childcare, and school fees.
- Replaces lost income: Life insurance can help cover your household expenses or debts if you cannot work due to illness or injury.
- Pays for medical expenses: Insurance allows you to recover from illness or injury without worrying excessively about medical bills. A life insurance policy payout can help cover the costs of your medical needs.
How to Buy Life Insurance in Australia
Life insurance in Australia can be purchased through the following avenues; direct, retail, and through your superannuation fund.
- Direct: If you want a fast approval process, get direct life insurance straight from life insurers. However, you need to do the research yourself such as calculating life insurance premiums and comparing life insurance quotes.
- Retail: A broker finds a type of cover that will best fit your needs. While these experts’ advice is valuable, getting insurance from brokers can take a more extended approval period of time.
- Super fund: You can also apply for life insurance through your super fund. However, premiums are taken from your balance which can affect your retirement goal and plans. Additionally, many Australian superannuation funds only have basic life cover which may not be enough to support your loved ones.
It is important to select the right life insurance option for your individual circumstances.
The Right Time to Buy Life Insurance
You can purchase insurance at anytime, as long as you are eligible. Some life stages and events, however, may prompt you to obtain an appropriate level of cover, including:
- Becoming financially independent
- Purchasing a house
- Starting a family
- Having people dependant on your income
What to Check Before Buying Life Insurance
Before you decide to purchase life insurance, revising the policy’s relevant product disclosure statement (PDS) is essential. This document, as required by the law, should always be provided by the insurer. Review the PDS for essential information, such as:
- Inclusions and exclusions
- What information the insurer needs from you
- Information about premiums and how premiums may change
- How to make a claim
- Waiting periods when making a claim
- Filing complaints about claims processes or decisions
What Affects the Cost of Life Insurance?
Numerous factors may influence life insurance costs. For this reason, obtaining a personalised insurance quote is essential before deciding whether a particular policy is right for you.
These factors may include the following:
- Age: Younger people usually pay less for life insurance
- Profession: People with high-risk jobs typically have higher premiums
- Smoking status: Non-smokers have lower life insurance premium rates than smokers
- Overall health: People without pre-existing conditions may pay less
- Cover amount: More potential benefits usually have higher monthly premiums
Different insurance providers may also offer life insurance at varying costs. For example, some insurers may offer a $250,000 life policy to a 40-year-old healthy male at an estimated cost of $4.40 per week. You will need to consider whether both the coverage level and premium are suited to your needs and budget.
How Much Life Insurance Should You Get?
When deciding the insurance amount and level of cover you need, consider the following factors:
- Your age
- Amount of money or savings you have
- Your estimated income
- Your financial obligations
- Number of dependants
- Amount in your super fund
- Assets you own
Some insurance providers have life insurance calculators online allowing you to calculate your potential premiums and payouts.
It’s also important to either compare life insurance quotes or engage with an expert who can compare the cost of life insurance premiums for you.
When Will Life Insurance Pay Out?
Your life insurance may pay out depending on specific situations and the type of policy you have.
For example, life cover will pay out upon the death of the insured. However, payouts for terminal illness claims may depend on the insurer and require particular documentation to be provided to support the claim.
In another example, TPD insurance will pay out when you are permanently disabled and unable to ever work again.
Every insurer has different definitions included within their policies and for a life insurance payout so it’s important that you are thorough when making your claim.
Who Can Apply for Life Insurance?
Your eligibility to apply for life insurance may depend on the individual insurer. For example, an insurer may accept your application if you are an Australian citizen aged 18 to 64, whereas others may accept applicants up to the age of 70
You can expect to answer some health- and lifestyle-related questions, such as medical history or smoking habits. The insurer will assess your application based on your responses.
If you include your partner in your policy, they may also need to answer a few questions and meet specific criteria to become eligible.
Some insurers may ask for additional information before deciding whether to approve your application.
Is Life Insurance Right for You?
Obtaining life insurance may be the right option if:
- You are the primary income earner in your family
- Your family is likely to struggle financially without your income
- You have financial obligations or household debts, such as mortgages or car loans that you or your family will still need to pay off in the event of death/if you are unable to work
- Your cash savings are insufficient to last for the rest of your life
- Your income streams are insufficient or will discontinue after your death
How Many Life Insurance Policies Can You Purchase?
Life insurance companies usually allow you to own multiple life insurance policies, depending on your personal circumstances and the premium levels you pay.
Let’s say a policyholder has a $200,000 term life insurance at age 30. After 10 years, they have re-calculated and determined that their coverage may not be enough. They then have the option to purchase a permanent life insurance policy worth $200,000.
Some helpful general advice when purchasing several policies is to be mindful of multiple premiums and differences in premium amounts.
Cancelling Your Life Insurance
While changes in circumstances may prompt you to purchase multiple policies, the same can also be said when considering cancelling your life insurance.
For example, you may be retiring or entering a different life stage. You may also opt to change providers or outright cancel your coverage based on life insurance cost.
Should you decide on changing your policy or insurer, you must coordinate your policy termination with the start of your new option to ensure that your cover continues.
Some individuals may opt to switch to the number one life insurance company in Australia. However, determining the top insurance company can be subjective as the criteria and customer experiences may differ, with no one-size-fits-all policy in existence.
When looking for the best life insurance provider, consider choosing one that provides:
- A comprehensive Financial Services Guide (FSG)
- Target Market Determinations (TMD) for specific products
- Excellent customer service
Trustworthy and reliable providers operate legally and have an Australian Business Number (ABN). Additionally, it is also important to transact only with financial advisers that have an Australian Financial Services License (AFSL).
Still not sure where to start, or want help securing the right insurance faster?
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- Life Insurance Claims: An Industry Review
https://download.asic.gov.au/media/4042220/rep498-published-12-october-2016a.pdf
- Registers of life insurance companies and friendly societies
https://www.apra.gov.au/registers-of-life-insurance-companies-and-friendly-societies
- Life insurance claims comparison tool
https://moneysmart.gov.au/how-life-insurance-works/life-insurance-claims-comparison-tool
