Your Complete Guide to Life Insurance in Australia
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What Is Life Insurance?
Life insurance is a type of cover that pays a lump sum benefit to your nominated beneficiaries if you pass away or are diagnosed with a terminal illness covered by your policy.
In Australia, most life insurance policies are known as term life insurance. This means your cover continues as long as you pay your premiums and meet the policy conditions, up to the policy’s maximum cover age (commonly around 99, depending on the insurer).
The money paid through a life insurance claim can be used for any purpose, including:
- Paying off a mortgage
- Covering everyday household expenses
- Replacing lost income
- Funding children’s education
- Paying medical or aged care costs
- Covering funeral expenses
Do You Need Life Insurance?
Life insurance can be a valuable financial safety net if someone relies on you. If your partner, children or other dependants would struggle financially without your income, life insurance can help provide ongoing financial support and greater peace of mind during an already difficult time.
You may want to consider life insurance if you have a mortgage, significant debts, support ageing parents or other dependants, own a business, or want to leave a financial legacy for your loved ones. On the other hand, if you have no dependants, minimal financial commitments and enough savings to cover future expenses, you may need less cover.
How Does Life Insurance Work?
When you take out a policy, you’ll choose a level of cover known as the sum insured. You’ll then pay regular premiums to keep your policy active. If you pass away or are diagnosed with a terminal illness that meets the policy definition, your insurer will assess the claim and pay the benefit.
The payout usually goes to your nominated beneficiaries or your estate. If your policy is held through superannuation, the benefit is generally paid to your super fund trustee first.
What Types of Life Insurance Are Available?
While life insurance covers death and terminal illness, there are other types of personal insurance that can help protect your finances.
| Type of cover | What it covers | How benefits are paid |
|---|---|---|
| Life insurance | Death or terminal illness | Lump sum |
| TPD insurance | Permanent disability that prevents you from working | Lump sum |
| Trauma insurance | Specified serious illnesses or injuries | Lump sum |
| Income protection insurance | Temporary inability to work due to illness or injury | Monthly payments |
Depending on your circumstances, you may choose one type of cover or combine multiple policies. TPD claims are assessed against your policy’s definition of disability, which may be ‘own occupation’ or ‘any occupation.’
How Much Life Insurance Cover Do You Need?
The right amount of cover depends on your financial situation and future obligations.You may want to consider the following when looking for suitable life cover:
- Outstanding debts and your mortgage balance
- Everyday living expenses
- Childcare and education costs
- Future income your family may need
- Funeral expenses
- Existing savings and investments
As a general guide, some financial experts suggest starting with around 10 times your annual income, but your requirements may be higher or lower depending on your circumstances. Review your cover regularly to make sure it keeps pace with major life events.
How Much Does Life Insurance Cost?
The cost of life insurance varies between insurers and depends on several factors, including your age, health and medical history, whether you smoke or vape, your occupation, lifestyle, hobbies, the amount of cover you choose, and whether you select variable age-stepped or variable premiums. In general, applying when you’re younger and in good health may result in lower premiums, which is why many Australians choose to arrange cover before their circumstances or health change.
Life Insurance Inside vs Outside Super
You can hold life insurance either through your superannuation fund or directly with an insurer.
Insurance through super can be convenient because premiums are paid from your super balance. However, the level of cover may not meet your requirements and policy features can be more limited.
| Insurance inside super | Insurance outside super |
|---|---|
| Premiums paid from super | Premiums paid directly |
| May offer default cover | Cover to match your requirements |
| Can reduce your retirement savings | Doesn’t affect your super balance |
| Limited policy features | More flexibility and options |
| Benefits may be paid through the trustee | Benefits generally paid directly to beneficiaries |
Many Australians choose to combine insurance inside and outside super to achieve the level of protection they need.
What Is Life Insurance Underwriting?
Underwriting is the process insurers use to assess your application and determine the level of risk involved in providing cover.
You may be asked questions about your:
- Medical history
- Occupation
- Smoking and alcohol use
- Height and weight
- Hobbies and activities
- Family medical history
Depending on your circumstances, the insurer may request additional medical information or assessments. After assessing your application, the insurer will decide whether to offer cover and on what terms.
Depending on the outcome, they may approve your application at standard premium rates, charge a higher premium due to increased risk, exclude cover for certain medical conditions, or decline your application if they determine the risk is too high.
Can You Get Life Insurance With a Pre-Existing Condition?
Having a pre-existing condition doesn’t automatically mean you’ll be declined for life insurance. Insurers assess each application individually based on factors such as the condition itself, when you were diagnosed, the treatment you’re receiving and your overall health.
Being open and honest during the application process is essential. Failing to disclose relevant information could affect future claims. Comparing multiple insurers can be worthwhile, as underwriting approaches can vary.
What Doesn’t Life Insurance Cover?
Each policy has its own exclusions and conditions, so it’s important to read the Product Disclosure Statement carefully.
Common exclusions may include:
- Suicide during the policy exclusion period
- Claims resulting from non-disclosure or fraud
- Certain high-risk activities
- Pre-existing conditions that have been specifically excluded
Always check the terms and conditions before purchasing a policy.
How to Compare Life Insurance Policies
Price is important, but it shouldn’t be the only factor you consider.
When comparing policies, look at:
- The amount of cover available
- Policy features and optional extras
- Exclusions and waiting periods
- Claims process and insurer reputation
- Premium structure
- Flexibility to increase or reduce cover later
Reading the Product Disclosure Statement can help you understand exactly what is and isn’t covered.
How to Apply for Life Insurance
Applying for life insurance typically involves these steps:
- Estimate how much cover you need.
- Compare policies and providers.
- Complete an application.
- Answer health and lifestyle questions.
- Complete any medical assessments if required.
- Accept your offer and begin your cover.
Some applicants may receive immediate approval, while others may require additional underwriting.
When Should You Review Your Cover?
Your life insurance requirements are likely to change as your circumstances change, so it’s important to review your cover regularly. Major life events such as getting married or separated, having children, buying a home, changing jobs, starting a business or paying off significant debts can all affect the amount of cover that’s right for you.
It’s also worth reviewing your policy as you approach retirement or whenever your financial goals change. Taking the time to reassess your cover can help ensure it continues to provide the right level of financial protection for you and your loved ones throughout different stages of life.
Frequently Asked Questions and Answers
What is life insurance in Australia?
Life insurance is a policy that pays a lump sum benefit to your beneficiaries if you pass away or are diagnosed with a terminal illness covered by your policy.What is the best age to get life insurance?
Generally, it’s best to buy a life insurance policy while you’re younger as your premiums may be lower than if you’re older. However, if you have financial responsibilities, for instance, you have a partner and kids or other dependants, you may want to make sure that you have an adequate amount of cover in place to care for your loved ones if you’re no longer there.Can I have life insurance inside and outside super?
Yes. Many Australians hold some cover through their super fund and additional cover outside super to increase their protection and access extra policy features.Is life insurance tax deductible?
Life insurance premiums are generally not tax deductible when held outside super. Tax treatment can differ when cover is held through superannuation.Can I get life insurance with a pre-existing condition?
Yes. Many people with pre-existing conditions can still obtain cover, although insurers may apply exclusions or premium loadings.Is life insurance worth it for seniors?
Life insurance may still be valuable for seniors who have outstanding debts, financial dependants or want to leave funds for final expenses.
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Or call us on:
I am a retired specialist General Practitioner. I was granted permanent residency status in Australia in November 2015.
DOB 09/09/1943. Currently in good health and go to gym for circuit and resistance training for 90 minutes 3 x per week
I am married and live in Claremont, Perth WA.
I would like to replace my South African insurance policies with an AUD 1million policy.
What would the requirements be and what would I be looking at as a premium on this amount of cover?
Thank You for reaching out to us Dr …. Sounds like you are in excellent health which is always good when it comes to Life Insurance. As you now have Permanent Residency in Australia, you do have options for Life Insurance only in the Australian Market but this would need to be looked at rather soon as policy inception is limited to taking out cover before the age of 75. Likely the Insurers will require a medical and a blood test during the application process or recent results of such. The level of cover that you are applying for will have to be financially viable and reflect your personal circumstances also. We make the process easy at Life Insurance Direct so please feel free to contact us on 1300 135 205 and one of our Life Insurance Specialists can discuss your options and compare up to 11 x Life Insurance Companies in the Australian Market for you. We look forward to hearing from you.
Why are your prices so competitive to AAMI and Bupa insurance?
Great question, it is because we primarily use “Retail” policies which generally have cheaper premiums than “Direct” policies and hard to believe but true also generally provide greater features and benefits too! This is why we built the industry first Quote index to highlight this to customers.
The reason why “Direct” policies which AAMI & Bupa insurance policies fall into is that they need to increase the premiums to cover their marketing costs & they generally ask less questions in the application (and therefore know less about you and any associated risks about you). They then adjust the premium accordingly!
We have this resource here which goes into more of the details in differences between “Direct” & “Retail / Advised” Policies as there are a few other important things to know.