Be prepared for life's emergencies
Life insurance protects you or your family from financial
difficulty after an unexpected event, like an illness, injury or
When you're buying life insurance, it's important to take the
time to understand the cost of the premiums - now and in the
future, as well as what is (and isn't) covered, and how your
medical history might affect future claims.
What does life
There are different types of life insurance cover. Depending on
your circumstances you may need one or more of the following:
When working out what insurance you need, always check what's
included and excluded in each policy.
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 help with
rehabilitation and living costs if you are totally and permanently
disabled. TPD is often sold with life cover.
cover - provides cover if you are diagnosed with a
certain illness 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
- Accidental death cover - pays a set benefit if
you die because of an accident (not from an illness or
How can I get a life insurance
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.
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.
- 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
- Directly from insurance companies or insurance
Direct life insurance
'Direct life insurance' is life insurance sold without personal
financial advice, and outside your super fund. It is often sold
online or over the phone, either in a 'cold call' from an insurer
or when you call an insurance company after you see an
advertisement about life insurance.
An ASIC review
of direct life insurance sales found that many people don't
really understand the life insurance products they buy, and are at
a high risk of getting cover that they cannot afford or that is not
right for them.
ASIC also found many people cancel their policies during the
cooling-off period, and claims are often declined or withdrawn,
which might be because people don't understand what pre-existing
medical conditions or other events are excluded from their
Video: ASIC's Katie and Emma discuss direct life insurance
How much life insurance do I
To work out the amount of cover, consider how much money your
- 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
Before you start comparing policies, check whether you already
have life insurance through your super
A licensed financial adviser can help you choose the right
insurance cover for your needs. To find an adviser who can
recommend insurance products, use the financial advisers
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.
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
- 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
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
Questions to ask before you buy
When you're buying life insurance, don't feel pressured to make
a quick decision - especially if you've received a call from an
insurer out of the blue. Always ask for the product disclosure statement (PDS) and
request a call back so you have time to consider the
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 them with your medical
details 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
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
think about 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
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
Whatever insurance you choose, it is important
to review your cover against your needs on a regular basis.
Last updated: 10 Sep 2018