Life cover

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 coverincome protection, and accidental death cover. Life cover is also known as 'term life insurance' or 'death cover'.

Life cover 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. 

Do you need life cover?

Life cover is 'guaranteed renewable', meaning it will generally only stop if you stop paying for it, or when you reach a particular age. It will continue even if you suffer an illness or injury, which would otherwise prevent you from taking out life cover.

If you have a partner or dependants

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.

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.

Smart tip

When purchasing life cover, take into account what other types of life insurance you need, such as income protection and disability cover.

Also consider whether your family could sell your home and move somewhere else or downsize to raise money to pay off your debts or mortgage.

If you are single and have no dependants

When deciding how much life insurance you need, think about how much you would need to cover your debts. 

You may have enough cover through your super fund. See insurance through super for more information.

Choosing life cover

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.

Smart tip

If you're considering changing super funds (like when you change jobs) assess your level of life cover at the same time.

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 need. 

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 each year.

Accidental death cover

When researching life cover options, note the difference between the type of life cover discussed on this webpage and 'accidental death' cover, which only covers you if you die because of an accident (not from an illness or disease). Always ask lots of questions until you understand exactly what you're getting.

Case study: Deepak and Flo's life cover

family together in loungeroomDeepak 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 household.
  • 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. Make sure you compare the policies' features and exclusions and the cost of the premiums - now and in the future. (Sometimes a cheaper policy will have more exclusions, or it will become more expensive in the future.) 

Things you need to tell your life insurer

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.

Be aware that 'shortcuts' - like not having to provide any medical details - will usually mean that the product you're buying has more exclusions, and will often be more expensive even though the cover is more limited.

Making a claim

If someone close to you dies and you need to make a claim, contact their insurer or super fund and find out exactly what you need to do. 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.

Related links

Last updated: 10 Sep 2018