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What is life insurance?

Life insurance is designed to provide a financial safety net if you were to:

  • Pass away or become diagnosed with a terminal illness
  • Become seriously injured
  • Become permanently disabled.

However, it can be hard to know which life insurance policy is right for you. There are three types of life insurance you’ll typically come across:

Each type of insurance makes a lump sum payment in a different set of circumstances. With our free comparison tool, you can compare all types of life insurance as an individual or combined policy from our panel of trusted insurers.

How to choose a life insurance policy

You’ll first need to decide on the amount of life insurance cover you want. The cover amount that’s best for you will depend on your personal circumstances. However, you may want to consider factors such as your superannuation, savings and passive income, and whether they will be enough to cover any debts (mortgage, credit cards, etc.), living expenses and school fees.

To simplify this process, try our free life insurance calculator, which will help you to estimate the level of cover you may need based on your circumstances.

To learn more about life insurance, see our in-depth guide to life insurance here

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Learn more about life insurance

TPD insurance

If an incident leaves you totally and permanently disabled and unable to work again or unlikely to be able to return to work in your occupation, Total and Permanent Disability (TPD) insurance pays a lump sum of money to support you. Depending on the TPD cover you take out, it may provide a payout if you cannot work in your occupation or any occupation based on your education, training and experience.

Trauma insurance

Trauma insurance policies (also known as critical illness or recovery insurance) are designed to support you if you’re diagnosed with a serious medical condition. This type of policy could provide a lump sum of money to help you pay for the medical bills and support you during your recovery time away from work.

Funeral insurance vs life insurance

Funeral insurance can ease financial pressure during an already stressful time. This type of cover helps your family pay for some of your funeral costs, up to a limit, which can include the coffin, burial, cemetery plots and more. Learn about this type of cover and how it differs from life insurance.

Life insurance for families

While there is no type of insurance called family life insurance, some insurers offer joint or multi-life policies that can cover you, your partner and even your children. This policy pays a lump sum of money to your beneficiaries should any of the insured family members become terminally ill or pass away.

Life insurance for seniors

Australian insurers may offer life insurance to seniors between the ages of 60 and 75, while others may have a higher maximum cover age. Eligibility and premiums will depend on your current health status and medical history.

Life insurance vs income protection

Generally, life insurance pays one lump sum of cash if you pass away or are significantly impacted by an illness or injury. Income protection replaces your lost income with regular cash payments of a percentage of your earnings (salary and superannuation) while you recover from serious illness or injury and cannot work.

Frequently asked questions

How does life insurance work?

When you take out life insurance, you sign a contract with an insurer and agree to pay the policy premiums regularly. In exchange, your insurer pays a lump sum to your listed beneficiaries (e.g. spouse, children) if you pass away or become seriously ill, injured or permanently disabled.

Life insurance either covers you for an agreed-upon term (e.g. for the next 10 or 20 years) or, for some insurers, until you reach a certain age. This type of cover is also usually risk-rated, which means your premiums will be calculated based on how likely you are to make a claim; as such, life insurance may cost more for high-risk individuals.

Also, you may need to sit through waiting periods before you can claim on your life insurance. To see your policy’s waiting periods as well as any inclusions, exclusions and limits, refer to the relevant Product Disclosure Statement (PDS).

How much does life insurance cost in Australia?

How much life insurance costs in Australia will vary between each person. The amount you may pay for life insurance is based on factors like your age, gender, health, smoking status, occupation, lifestyle and other risk factors.

Your life insurance premiums will also depend on the type of policy, what the policy covers and whether you choose stepped or level premiums.

The amount you pay with a level premium structure is spread evenly over the life of your policy. This means you’ll be charged more in the earlier years and less in the later years compared with a stepped premium policy.

On the other hand, a stepped premium policy usually starts out cheaper than a level premium policy but gets more expensive over your lifetime. You’ll want to consider whether you’d prefer cheaper premiums now or more affordable premiums over time. For some insurers, your policy will automatically change to a stepped premium structure after a set period (e.g. at the review date following your 65th birthday or after 30 years).

For both premium types, the amount you must pay can vary if the sum insured changes (e.g. by voluntary increase or indexation) or your insurer changes their premium rates. Other factors such as a change in government charges (e.g. stamp duty) can also affect your premium. For any future increases to the insured sum, your premium increase will be based on your age when the increase occurs.

To determine how much life insurance may cost you, you can compare life insurance quotes using our online comparison service.

Do I need life insurance?

You’ll need to make this decision for yourself based on how you think your family would cope if you weren’t there to support them financially.

Specifically, you may need to consider how your family could fare if they needed to pay off debts or cope with regular expenses without your income.

Life insurance also allows you to leave an inheritance to help your children get ahead if you’re no longer around.

You’ll need to take out a policy before an insured event (like a severe injury) occurs. If you become seriously injured and then take out a life insurance policy, you wouldn’t be able to claim this injury on your cover.

It’s also worth noting that many superannuation funds include some form of life insurance. If you want to check if you already have life insurance through your superannuation, call up your super fund. You might find that the cover you have through your super may be insufficient for your needs.

What is term life insurance?

Term life insurance could help financially support your beneficiaries (e.g. your family) if you were to pass away or receive a terminal illness diagnosis. This policy is a common type of life insurance offered by Australian insurers.

Term life insurance replaced whole life insurance as the most popular form of life insurance for Australians in 1992 when compulsory superannuation was introduced. Unlike whole life insurance, term life insurance only covers you for a predetermined period of your life (e.g. until you turn 80).

Why do Australians choose to take out life insurance?

If you’re wondering if life insurance is worth it for you and your family, consider these four reasons why you may want to take out cover:

  1. Changing circumstances. Having kids or buying a house means you have more financial responsibility, and your support means a lot more to others who depend on you.
  2. Protecting your family from debt. You don’t want to leave your family struggling to pay for rent, mortgages or utility bills to keep the hot water on and a roof over their heads.
  3. Maintaining your family’s lifestyle. If you’re no longer around or are terminally ill, you want your family to continue living comfortably, which means being able to afford food, schooling, childcare costs and even entertainment.
  4. Cover may cost more later. Because the cost of life insurance is based on your risk of making a claim, it may cost more to take out when you’re older and have a potentially higher chance of passing away.

Can high-risk individuals get life insurance?

Even if you’re more likely to claim on a life insurance policy than someone else, you may still be able to take out cover. However, life insurance for high-risk individuals will usually cost more.

To determine if you’re a high-risk individual and how much you’ll pay for such a policy, insurers will typically assess your occupation, health, lifestyle and hobbies.

Some examples that may categorise you as a high-risk individual include:

  • Smoking
  • Regularly engaging in extreme sports or risky hobbies (e.g. skydiving, car racing, scuba diving)
  • Working in a dangerous occupation or job (e.g. doctor, firefighter, mine worker)
  • Poor health due to a pre-existing medical condition or disease (e.g. cancer, diabetes, depression, anxiety).

Do women pay less for life insurance?

Women’s life insurance may cost less than men’s because they typically have a longer life expectancy and, on average, better health. Insurers will consider these factors when calculating life insurance premiums for women. However, there other factors that could result in a woman paying more.

All risk-rated insurance products are priced based on the risk of the individual, male or female. So, if a woman lives a risky lifestyle, is older or has medical conditions that might lead to a claim in the future, there’s every chance she may pay more for life insurance than a man who is considered ‘less risky’.

If you’re curious about what you’ll pay for life insurance, one of the easiest ways to find out is to get a life insurance quote using our comparison service.

Is life insurance tax deductible?

No, you can’t claim any tax deductions for life insurance premiums. However, income protection insurance premiums may be tax-deductible, as it protects against loss of income, not life1. You should consider talking to a qualified tax specialist to determine what you can claim on tax each financial year.

Please note: This information is provided for information purposes only and does not constitute tax advice.

What benefits should I look for in a life insurance policy?

Life insurance policies can come with a variety of benefits and will be priced accordingly. This means that you’ll want to understand everything that’s included in your policy so you’re not paying for cover you don’t need or missing out on cover you do.

Some common benefits include:

  • Life buy-back option. If you’ve bundled your policies together and you make a TPD claim, the payout you receive from your TPD claim could be deducted from the total life insurance payout amount you’re entitled to. This buy-back option lets you restore your life insurance payout to the original amount before you made your TPD claim.
  • Funeral advancement. If the insured person passes away and the beneficiary provides a death certificate to the insurer, they can receive a portion of the life insurance payout (up to a limit) in advance to cover funeral costs.
  • Guaranteed Future Insurability (GFI). This ensures your cover changes if your life changes significantly, such as getting married or divorced, buying a house or having kids. GFI ensures your cover amount increases enough to cover you for your new circumstances without having to repeat health checks or submit another application.
  • Premium pause life insurance option. You may be able to pause paying your premiums for a limited time (listed on your PDS) if you’re experiencing financial hardship (e.g. losing your job). However, this means you won’t be covered if anything happens during this period.
  • Unemployment premium waiver. This could waive your life insurance premiums if you’re unable to work for a specified time (listed on your PDS) due to an accident or illness. However, this waiver will stop when you return to work or start making a regular income.
  • Child cover pays a sum of cash if your child dies or falls terminally ill.
  • Accidental death cover may allow your beneficiaries (e.g. dependents) to receive a cash payout if you die from an accident.

Meet our Head of Health, Life and Income Protection Insurance, Lana Hambilton

Lana Hambilton understands the benefits of life insurance, particularly in difficult times. Like any insurance, life and income protection are there to support you and your loved ones when the unexpected happens. She is passionate about helping Australians understand their options and supporting them to navigate products to find the right one for their lifestyle and needs.

Lana has over 15 years’ combined experience in life, income protection and health insurance and insurance comparison industries. She’s also a Board Member of the Private Health Insurance Intermediaries Association.

Lana’s top life insurance tips

  1. It’s important to carefully read the Product Disclosure Statement (PDS) of any life insurance policies you’re reviewing. The PDS will contain all the relevant information about the policy so you can decide whether it’s the best option for you.
  2. If you have any pre-existing medical conditions, always be honest with life insurance providers when comparing options. Some pre-existing conditions may not be covered or may affect the price you pay for a policy, and you don’t want to claim later down the track only to be rejected because you weren’t honest about your medical history.
  3. Pay very careful attention to the inclusions and exclusions of the policies you’re comparing. Some events or illnesses may not be covered by a policy, or the inclusions may not be relevant to you.


1Australian Taxation Office, Income protection insurance. (Accessed April 2022)

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