Cushioning the impact
Life cover is one type of cover that falls under the heading
'life insurance'. Other types include total and permanent
disability cover, trauma cover, and income
protection. Life cover is also known as term life insurance or
death cover. It pays a set amount of money when the insured person
dies. The money will go to the people you nominate as beneficiaries
on your policy. If you have not made a binding nomination then a Trustee or your
estate will determine where the money goes.
Talking about dying isn't easy. But it's worth some thought. By
setting up a way to support your loved ones after you die, you can
ensure they can continue to pay the mortgage and school expenses,
go on holiday and buy essentials.
Do you need life cover?
When purchasing life cover, take into account what other types
of life insurance you need, such as income protection and
When deciding how much life cover you want, think about:
- All your debts
- Your children's future childcare and education costs
- How much income your family will need to live comfortably
Life cover is 'guaranteed renewable', meaning it will generally
only stop if you stop paying for it. It will continue even if you
suffer an illness or injury, which would otherwise prevent you from
taking out life cover.
Think about what you want to cover. For example, you may want to
cover your mortgage, education costs for your children and credit
card debt. It is important to remember that the higher the level of
cover, the higher your premiums will be. Ask yourself how long you
want to hold your life insurance for and make sure you can afford
to pay the premiums over time, especially if your premiums rise
Consider whether your family could sell your home and move
somewhere else or downsize to raise money to pay off your debts or
When researching life cover options, note the difference between
the type of life cover discussed on this webpage and 'accidental
death' cover, which is not guaranteed renewable and only covers you
if you die in specified ways. Always ask lots of questions
until you understand exactly what you're getting.
Choosing life cover
If you're considering changing super funds (like when you change
jobs) assess your level of life cover at the same time.
If you're an employee you may already have life cover, as most
super funds offer default cover that is often cheaper than buying
it separately through an insurance company - so this should be the
first place you look.
Generally your employer's default superannuation fund must offer
you a minimum level of life cover depending on your age (e.g.
$50,000) which you can choose to maintain or increase.
To see what level of cover you have through your super fund:
If you are not a member of a default super fund with life cover,
or you want additional cover, you can purchase it from an insurance
company directly. You can also get life cover through an insurance
broker, bank or licensed financial adviser.
Lifewise has more
information on the benefits of life insurance. It also has a
calculator to estimate how much life cover you might
Case study: Deepak and Flo's life cover
Deepak and Flo are married. Deepak works 6
days a week while Flo works part-time and looks after their two
young kids. They decided to get life cover for both of them, not
just for Deepak, who is the major bread-winner. That's because they
realised that if Flo died, Deepak wouldn't be able to earn enough
income to pay for full-time childcare. Fingers crossed that they
don't need it anytime soon, but it does provide peace of mind.
Life cover tips
Here are some other things to do when choosing life cover:
- Discuss it with your family
- Don't only insure the highest income earner in your
- Be realistic about how much cover you need
- Decide whether you want stepped or level premiums
- Read the product disclosure statement (PDS) to find the
benefits and any limitations on your cover
- Once you know which cover and how much you need, shop around to
compare costs with at least two other insurers
- Check if your product is inflation-indexed so your cover keeps
up with the cost of living
Things you need to tell your
You need to tell your insurer anything that could affect their
decision to insure you when you are applying for, renewing or
changing a life insurance policy. You also need to tell the life
insurer about things that have happened between the time you apply
and when the insurance cover starts.
Some life insurance companies need you to give them details of
your medical history. If you don't have the information they
require you can get it from your doctor. If you don't give the
insurer this information they may refuse your claim and this could
affect any life insurance you apply for in the future.
Making a claim
If someone close to you dies and you need to make a claim,
contact the deceased's insurer or super fund and find out exactly
what you need to do. It's a good idea to take notes and ask them to
send you copies of all the relevant forms and policies. This
process may take several months depending on the circumstances.
Life cover is something that's worth talking
over with your family. Discuss what would happen if you or your
partner died and choose the right cover for your circumstances.
Last updated: 28 Jul 2016