Difference between standalone and linked life insurance

Linked life insurance policies can bundle multiple life insurance products together for a combined amount of cover. Typically, linked cover is cheaper than standalone cover.

Let’s say you’re covered for:

• $250,000 in term life insurance
• $100,000 in total and permanent disability insurance (TPD)
• $25,000 in trauma cover

With a linked life insurance policy, the highest amount you can claim is the highest individual benefit. In the example above, the maximum you could claim is $250,000. this means that you can’t claim for more than that amount no matter which insurance type you’re claiming for.

You can typically only link policies that pay out a lump sum, so you would not be able to link income protection and life insurance cover if you had these.

With a standalone life insurance policy, the total sum insured is set for each product individually. For example, you could have the same level of cover as detailed above but claiming on TPD cover won’t affect your term life or trauma cover. That also means you won’t be able to claim more than a certain amount for each type of cover (e.g. the maximum you can get from trauma cover is $25,000). However, when you make a claim on your stand-alone policy, it won’t reduce the claim amount for other standalone policies you have.

However, a stand-alone policy may come with a higher premium than bundled policies, as you’ll be paying for each of your policies individually. Keep in mind also that you can’t claim more than the cover amount on any type of insurance you purchase.

Not all insurances, or benefits, can be structured and paid for inside of super.  For example, you can’t own or pay for trauma/ critical illness cover and TPD Own Occupation through superannuation.

If you want to take out life insurance through your superannuation, and link TPD and Trauma Insurance to the life insurance policy, you may be able to have a ‘flexible policy linking’, meaning you can split the ownership of your policy between your super fund and individual ownership. Taking advantage of the flexible policy linking option increases the flexibility of your premium payments, so fewer premiums are paid out-of-pocket.