A Quick Guide | Life Insurance

life insurance guide and quotes

We know preparing for unexpected events is not always front of mind or a priority.

However there is a quick, simple process to help make sure our loved ones are looked after if something does happen.

We think it’s worth taking a moment to think about!

Staying true to our mission, to empower people through choice and data, we’re excited to announce that we’re expanding our financial services products to include insurance.
Life insurance helps to protect your loved ones from financial troubles if an unexpected event happened, like illness, injury or death. We’re here to help you easily find a provider if your are considering changing or buying a new life insurance.

So, we thought we would deep dive into the basics of life insurance to help you navigate through this space and make a decision that will give you peace of mind.

Quick tips:

  • When working out what insurance you need, always check what’s included and excluded in each policy.
  • Life insurance offered by your super fund is often cheaper than through other providers, but it’s important to shop around to find the right policy to suit your needs.
  • Before you sign up for an insurance policy, make sure you understand what is – and what is not – covered and that it meets your needs.

What does life insurance cover?

There are different types of life insurance cover. Depending on your circumstances you may need one or more of the following:

  • Life cover – also known as ‘term life insurance’ or ‘death cover’, pays a set amount of money when you die. The money will go to the people you nominate as beneficiaries on your policy.
  • Total and permanent disability (TPD) cover – pays a lump sum to help with rehabilitation and living costs if you are totally and permanently disabled. TPD is often sold with life cover.
  • Trauma cover – provides cover if you are diagnosed with a certain illness that has a significant impact on your life, such as cancer or a stroke. It is sometimes called ‘critical illness cover’ or ‘recovery insurance’.
  • Income protection – replaces some of your income if you are unable to work due to injury or sickness.
  • Accidental death cover – pays a set benefit if you die as the direct result of an accident (not from an illness or disease). Most accidental death policies include a long list of exclusions, like death from hazardous activities, drugs/alcohol, and self-harm.

How can I get a life insurance policy?

You can buy life insurance from:

  • your super fund – Many working Australians have some life and disability insurance with their superannuation. See insurance through super.
  • financial advisers (with personal advice) – Read ASIC’s report,  Review of retail life insurance advice, to learn what ASIC found about the quality of life insurance advice from financial advisers.
  • insurance companies or insurance brokers.

How much life insurance do I need?

To work out the amount of cover, consider how much money your family would:

  • need – to pay your mortgage and any other debts, as well as child care, education and living expenses.
  • receive – from superannuation, shares, savings and existing insurance policies, how much paid leave you have and what type of support your family could provide.

The difference between these is the amount of cover you should get.

Always consider your personal circumstances when choosing a policy and deciding how much cover you need. For example, if you are single with no dependents, you may decide that you need less cover than someone with a partner and/or children.

Before you start comparing policies, check whether you already have life insurance through your super fund.

When to review your life insurance

Review your policies every time your income or your personal circumstances change to make sure you have the right type and level of cover.

For example, if you have children and a large mortgage you may decide you need more cover. Alternatively, if you’ve paid off your mortgage or no longer have financial dependants you may decide to reduce your cover.

Switching life insurance cover

If you decide to switch your cover to a different insurer, don’t just look at the difference in premium. You should also consider the:

  • level of cover – will you get the same level of cover, and is this the cover you need? For example, if your current insurer covers any pre-existing conditions, will your new insurer do this as well?
  • waiting periods – do any waiting periods apply to different types of benefits with your new insurer?

If you switch to a different insurer, it is important to keep your existing cover until you have a new policy in place, so you’re always covered.

Insurance calculators

There are many online insurance calculators to help you work out how much cover you should have. It’s a good idea to check a few different calculators to see a range of recommendations for your circumstances.

Questions to ask before you buy life insurance

When you’re buying life insurance, don’t feel pressured to make a quick decision. Always ask for the product disclosure statement (PDS) and request a call back so you have time to consider the product.

Make sure you understand:

  • the events or illnesses covered by each type of insurance
  • the level of cover
  • the ongoing cost of the cover. For example, will the premiums stay the same each year? If not, will you be able to afford the insurance in the long term?
  • how your medical history might affect the policy
  • any exclusions.

Beware of shortcuts – not having to provide any medical details to get covered can mean that the insurance product may have more exclusions and be more expensive.

Pre-existing medical conditions

Before you apply for insurance, check the insurance provider’s website or PDS to find out if they cover any pre-existing medical conditions. You will need to give them relevant details of your medical history. If you don’t provide this, your policy may not pay out when you need to claim.

What’s the difference between stepped and level premiums?

Insurance premiums usually increase with age because the older you get, the more likely you are to make a claim.

For insurance such as life, total and permanent disability, or trauma cover, you may be able to choose between stepped or level premiums.

Here is the difference between stepped and level premiums:

  • Stepped premiums – Your insurance premium increases each year. Depending on your age, your policy, and other factors, your annual premium could increase by hundreds of dollars in just the first few years. If you’re thinking about this option, consider how long you intend to hold the insurance for, to make sure you can afford the rising premiums.
  • Level premiums – Your insurance premium does not change as you age but is generally more expensive than a stepped premium in the beginning. Level premiums may increase over time due to inflation (which you can opt out of) or changes to the insurer’s fees, but these will be smaller increases than a stepped premium.

If you want to control your costs over time, level premiums may suit you as they are usually higher in the beginning but much cheaper than stepped premiums when you are older. If you intend to hold the insurance for a long time, level premiums will be more predictable.

Once you chose your insurance, it is important to review your cover against your needs on a regular basis.


Inspiration: MoneySmart, Life insurance.


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