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Many insurers in Australia give you the option of bundling multiple life insurance products under a single policy. This could potentially save you time and money, but depending on your circumstances, you may want to take out multiple stand-alone policies instead.

We’ll take you through the differences between linked and stand-alone life insurance to help you decide which one may suit you best.

Linked policies

Linked life insurance policies can bundle multiple life insurance products together for a combined amount of cover, typically in exchange for a cheaper premium.

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.

Although the above represents a combined total of $375,000 worth of cover, the maximum sum insured is only $250,000. This means that you can’t claim for more than that amount no matter which insurance type you’re claiming for.

For example, if you had to make a claim for trauma insurance and received a payout of $25,000, your total sum insured would reduce to $225,000. And likewise, if you made a claim for TPD and $100,000 was paid out, the new sum insured would be $125,000.

You can typically only link policies that pay out a lump sum. This means you would not be able to link income protection and life insurance cover.

Stand-alone policies

With a stand-alone life insurance policy, the total sum insured is set for each product individually instead. 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, a stand-alone policy may come with a higher premium than bundled policies. Keep in mind also that you can’t claim more than the cover amount on any type of insurance you purchase.

What’s a ‘buyback option’?

For anyone with a linked policy, buyback options or re-instatement give you the opportunity to restore your sum-insured following a claim.

For example, say you had to claim on your trauma cover and this reduced your total sum insured amount. With a buyback option, you may be able to pay to increase your total sum-insured back to your original amount. This ensures you are appropriately protected in case you need to make a claim in the future. This may result in slightly higher premiums to be able to restore or increase the sum-insured back to the original cover amount. For example, if you claim your $25,000 on your trauma policy because you had cancer, you may be able to buyback your trauma policy a year later; however, it may have a cancer exclusion.

Can you link life insurance through your super fund?

If you want to take out life insurance through your superannuation, you may still be able to have a linked policy. In fact, some insurers offer ‘flexible policy linking’, meaning you can split the ownership of your policy between your super fund and individual ownership. This increases the flexibility of your premium payments, so less premiums are paid out-of-pocket.

However, you’ll want to keep in mind that you may not have access to the same policy options through your super as you would from a specialist insurer. For example, you can’t take out trauma/ critical illness cover through superannuation.

How will I know if I have linked or stand-alone insurance?

You’ll know whether you’re insured under a linked or stand-alone policy because it’s listed on your insurance certificate; you can always call up your insurer to check, though.

What should I do next?

Once you’ve decided which type of life insurance you want and if you want it to be linked or stand-alone, all that’s left to do is compare! Our free comparison tool can help you look for the best cover for you and your loved ones. We’ll show you policies from some of the most trusted Australian insurers side by side so you can compare insurance premiums, exclusions and more.

The information provided here is general only and does not consider your personal objectives, financial situation or needs. Before you decide to purchase a product, it’s important to read the relevant product disclosure statement (PDS) and target market determination (TMD) to make sure it’s the right product for you.

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