Imagine what your family's life would be like if you or your
partner died or became seriously ill and couldn't work. Would you
be able to survive financially? Being unable to work as a result of
an accident or ill-health could expose you or your family to
financial difficulty. Insurance can provide the money you or your
family need in these critical times.
It is a good idea to review your cover regularly, especially if
something has changed in your life, for example, if you've taken
out a home loan, are having kids or starting a business.
Types of life insurance
When working out what insurance you need, always read up on
what's included and excluded in each policy.
There are different types of cover that fall under the broad
heading of life insurance. Depending on your circumstances you may
need one or more of the following:
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
- Total and permanent
disability (TPD) cover - pays a lump sum to
assist with rehabilitation and living costs if you are totally and
permanently disabled. TPD is often bundled with life cover.
cover - provides cover if you are diagnosed with
a specified illness or injury. These policies include the major
illnesses or injuries that will make 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
the income lost through your inability to work due to injury or
How much life insurance do I
Life insurance offered by your super fund is often cheaper than
through other providers, but it is important to shop around to find
the right policy to suit your needs.
There is no correct answer, but more insurance gives you more
protection. However, it also depends on what you can afford, so you
may need to prioritise.
To help work out the best level of insurance cover for you,
- How much cash your family would have if you
were to die or become disabled. How much money is in
superannuation, shares, savings and existing insurance policies?
How much paid leave do you have? What type of support could your
family provide? You may also be entitled to government benefits or
workers compensation if you get injured (although this may be
reduced by income protection claims).
- How much cash your family would need if the
worst were to happen. Consider the size of your mortgage and any
other debts, as well as childcare, education and other costs.
The difference between these is the amount of cover you should
get. However, you may need to compromise between what you would
like and what you can afford.
Before you start comparing policies, check whether you already
have life insurance through your super
fund, as you may already have some cover.
You may decide to change your level of cover based on changes to
your lifestyle. 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
dependents you may decide to reduce your cover.
Review your policies every time your income or your personal
circumstances change to make sure you have the right type and level
Switching life insurance cover
If you decide to switch your cover to a different insurer, don't
just look at the difference in premium. It is also important to
- Level of cover - will you be recieving 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?
A licensed financial adviser can help you choose the right
insurance cover for your needs. For more information, see our financial advisers
There are many online insurance calculators to help you work out
how much cover you should have. Some have detailed questions so it
is a good idea to check a few different calculators to see a range
of recommendations for your circumstances.
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
Here is the difference between stepped and level premiums:
- Stepped premiums - Your insurance premium will
increase each year as you get older but is usually cheaper in the
beginning. If you're thinking about this option, it is worth
looking at what the premiums will be over the next 5 years, or
however long you intend to hold the insurance for, to make sure you
can afford the premiums.
- Level premiums - Your insurance premium
does not change due to your age but is generally more expensive
than a stepped premium in the beginning. Level premiums may
increase over time due to inflation adjustments or changes to the
If you want to control your costs over time then level premiums
may suit you. Premiums 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 are likely to be
cheaper in the long run.
How can I get a policy?
You can buy life insurance in three main ways:
- Your super fund - Many working Australians
have some life and disability insurance with their superannuation.
insurance through super.
- Insurance companies
- Insurance brokers and financial advisers
It is a good idea to shop around and compare policies based on
the level of cover they provide, exclusions and value. 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
Before you apply for insurance, check the insurance provider's
website or product disclosure statement to find out if they will
cover any pre-existing medical conditions. You will need to
disclose relevant details of your medical history to the insurance
provide if you are asked. Failing to 'tell it like it is' could
leave you with a worthless policy.
Read ASIC's report,
Review of retail life insurance advice, to learn what ASIC
found about the quality of life insurance advice from finanical
Whatever insurance you choose, it is important
to review your cover against your needs on a regular
Last updated: 01 Nov 2016