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What is life insurance?

Unfortunately, when illness or injury disrupt your life, your financial obligations don’t just disappear. Life insurance is designed to safeguard you and your loved ones from financial hardship if you:

  • Pass away or fall ill with a terminal condition
  • Are diagnosed with a serious illness
  • Sustain a crippling injury
  • Suffer from a permanent disability.

If you experience one of these scenarios and have a life insurance policy, you can receive a lump sum payment to help towards your mortgage, kid’s school fees, living expenses or whatever else you deem most important.

To figure out how much life insurance cover you may need, consider using our life insurance calculator.

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Types of cover

Term life insurance

Term life insurance (sometimes called death cover) insures you for a lump sum amount that a nominated beneficiary receives upon your death or, in some cases, diagnosis of a terminal illness.

Trauma cover

Trauma insurance (sometimes called critical illness cover) pays out a lump sum in the case of a serious medical incident that prevents you from working. This is similar to TPD insurance, except that it still covers you for conditions that you can recover from.

Total and permanent disability (TPD)

Total and permanent disability insurance covers you if you suffer from a permanent disability that will likely prevent you from ever returning to work, whether in your current occupation or any other occupation, depending on the cover you take out.

What is covered under life insurance?

What is coveredTerm life insuranceTrauma coverTPD insurance
Terminal illness
Serious, non-permanent illness or injury
Minor permanent disability*Limited coverLimited cover
Total permanent disability**Limited cover
*A condition that won’t affect your ability to work
**A condition that leaves you unable to work

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Optional life insurance benefits

Accidental death benefits

Some insurers will give you the option of receiving an accidental death benefit. This means that your beneficiary will receive an additional payment on top of your existing life insurance payout if your death was the result of an accident.

Child cover

With child life cover, you will be covered up to set amount in the unfortunate event that your child suffers a critical illness or dies. This lump sum payment can help pay for medical treatment or funeral costs in these situations.

Grief support

Some life insurance providers will offer grief support benefits for the immediate family of an insured person who has passed away. This benefit makes payments towards grief counselling on top of the standard insurance payout.

Needlestick cover

If you work in a medical field, you may be able to add needlestick cover to your life policy. This will pay a lump sum if you contract certain illnesses through an accidental needle poke while working. This benefit only applies to specific medical occupations, so make sure to check with your insurer.

Accommodation benefit

If you’re confined to your bed away from home, you may be eligible for a long-distance accommodation benefit to cover your family’s accommodation costs so they can stay near you during your time of need.

Business expenses

If you’re self-employed or own a small business, business expense cover can help keep you afloat while you’re unable to work. This is usually in the form of monthly payments over a set period.

Understanding life insurance

How does life insurance work?

When you take out life insurance, you will get to choose both the type of insurance and cover amount. You will have to pay a life insurance premium that is influenced by several factors, including  your insurance type and cover amount as well as pre-existing medical conditions. Your eligibility for a life insurance policy may depend on your occupation, lifestyle and medical history. For example, if you work a high-risk job, live a dangerous lifestyle or are predisposed to certain medical conditions, you may have to pay an additional loading – if you’re even eligible for cover at all.

When your claim is approved, your insurance provider will pay you or your beneficiaries a lump sum amount that you can use however you think is best. Many people choose to use their payments to help their family maintain a good quality of life when they can no longer provide for them. This could mean paying for major life events like weddings, funerals or future children, or day to day expenses like school fees and recreational costs. If you’re unsure how best to spend your payout, consider seeking advice from a financial planner.

To fully understand the terms, conditions and exclusions of your life insurance policy, refer to the relevant Product Disclosure Statement (PDS) and any other policy documents.

Do I need life insurance?

Whether you need life insurance or not is a personal decision you have to make for yourself depending on your personal circumstances. However, here are a few things to ask yourself when deciding if life insurance is a good idea for you:

  • Could you take significant time off work to recover without hurting your financial security?
  • Would your superannuation fund be enough if something happened to you?
  • Does your family have a secondary source of income or are you the sole earner?
  • Do you have life insurance cover through your super fund?

If the answer to these questions is no, you might want to consider looking into a life insurance policy. This is only general advice; consider talking to a financial adviser before deciding to take out life insurance.

How much life insurance do I need?

The exact amount of cover that you need will depend on your personal circumstances. If you have financial obligations such as credit card debt, car repayments or a mortgage, you may want to consider taking out a higher level of insurance to cover these expenses. To get a good idea of the amount of cover you might want to take out, try our life insurance calculator.

How much does life insurance cost?

The amount you pay for life insurance will depend on several factors. The type of cover and cover amount that you choose will most likely have the biggest impact on your premiums. However, you may also be subject to life insurance loadings, which are an additional fee you might have to pay if you’re deemed as high risk by your insurer. This could be because of a family history of certain medical conditions or if you have a high-risk lifestyle or occupation. The full list of loadings and exclusions can be found in your Product Disclosure Statement (PDS); be sure to read this thoroughly before taking out any policy.

Life insurance policies can come with either stepped or level premiums:

  • Stepped premiums mean that the amount you pay changes as you age. This usually means they increase as you grow older as your risk level (i.e. likelihood to claim) increases.
  • Level premiums are calculated based on your age when you take out your policy. Some policies with level premiums have an age limit and will switch over to a stepped premium structure when you reach a certain age. These policies are usually pricier to start out, although they may save you money in the long term.

Can I get life insurance with a pre-existing medical condition?

While many insurers will cover you if you have a pre-existing condition, there is a good chance you will have to pay an additional loading on top of your premiums. Alternatively, some insurers may apply exclusions to your policy that prevent you from claiming benefits relating to your condition.

For example, if you have a heart condition, you may not be covered for heart attacks, but you would be for other conditions like cancer or work accidents.

With pre-existing conditions, it’s important that you’re always honest with your insurer. While having a pre-existing condition can increase your premiums, not disclosing your medical condition can be even more costly in the long-run, as your claim may be denied if your insurer finds out you weren’t honest about your medical history.

Anthony Fleming, General Manager

Top tips for life insurance from Anthony Fleming, General Manager of Health Insurance and Life Insurance

  1. Make sure you know the difference between term life insurance and income protection. Term life insurance policies pay your beneficiary a lump sum if you become terminally ill or pass away, whereas income protection provides you with a percentage of your income if you’re unlikely ever to return to work due to injury or illness.
  2. There’s no ‘one-size-fits-all’ product when it comes to life insurance. Factors such as your lifestyle, age, income, debts and even the number of dependents you have can influence the level of cover you require. Ensure you choose a product that thoroughly covers your needs and suits your personal circumstances.
  3. While your health status can affect your life insurance application, you should always be honest about it. Every application is individually assessed and having a pre-existing condition won’t always exclude you from cover.

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