Life cover

Cushioning the impact

Life cover is one type of cover that falls under the heading 'life insurance', and may also be known as 'term life insurance' or 'death cover'.

Life cover pays a set amount of money when you die. The money will go to the people you nominate as beneficiaries on your policy. If you have not named someone on your policy then a Trustee or your estate will decide 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 will be able to continue to pay the mortgage and other expenses when you are gone.

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 extended family could provide.

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

Smart tip

When purchasing life cover, consider what other types of life insurance you may 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.

Work out if you need life cover and right level of cover.

life insurance calculator

Choosing life cover

Most superannuation funds offer default life cover that is often cheaper than buying it separately through an insurance company, so check this before you start looking around.

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 buy it directly from an insurance company, or 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 your level of cover, the more expensive 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 these costs 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). This type of cover often has a long list of exclusions, so 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 realised that if Flo died, Deepak wouldn't earn enough income to pay for full-time childcare. So they decided to get life cover for both of them, not just for Deepak, who is the major bread-winner. This gave them peace of mind that their family would be looked after should something happen to either one of them. 

It's important to shop around before you choose life or accidental death cover to see what options are available.

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 PDS to find the benefits and any limitations or exclusions 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.) 

Check how long it takes different insurers to pay a claim and the percentage of claims they pay out.

life insurance claims comparison tool

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 them about any things that happen between the time you apply and when the insurance cover starts, that might affect your eligibility for life cover, like certain health issues.

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, which 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.

Making a claim on your life cover

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 worth discussing with your family. Talk about what would happen if you or your partner died and choose the right cover for your circumstances.

Related links

Last updated: 29 Mar 2019