Compare a range of Life Insurance policies using 5 star ratings. Find the best policy for you by viewing features, premiums, and more.
Compare a range of Life Insurance policies using 5 star ratings. Find the best policy for you by viewing features, premiums, and more.
August 31st, 2015
There’s no sure way to know how long you’re going to live, but some of us spend plenty of money trying to beat the clock. How can you work out what your life expectancy is? Official statistics from AIHW and ABS According to the Australian Institute of Health and Welfare (AIHW), the life expectancy of children born here in Australia in the 201...read more
What is Life Insurance?
Life insurance may not be a popular barbeque topic but it’s nevertheless a crucial part of any financial plan. Sadly, many Australians do need to fall back on their personal insurance each year, with The Risk Store advising that total claims paid out by retail insurers top approximately $5 billion per annum.
If you’re not sure that you really need personal insurance, ask yourself the following questions:
- If you died, would your family be able to maintain its current standard of living?
- As well as current standard of living, would your family be able to afford the future goals you had set?
- If you were permanently disabled, how would your family pay the bills? If you don’t have a family, who would look after you and would you be able to afford the care?
- How long could you continue to pay your bills without your income?
- If you suffered a significant injury, could you afford home modifications?
- How would you pay for the cost of any long-term rehabilitation you may need?
If the answer to any of the above indicates the need for extra money to be available, you need to look at personal insurance!
Types of Life Insurance
There are four main types of life insurance cover, as follows:
Term Life Insurance
Life insurance provides a lump sum payment to your beneficiaries upon your death or upon your diagnosis with a terminal illness that will end in death within 12 months. It can help your dependents pay out any debts that you may have together and it can provide for the future needs of any children you have. It can also provide a lump sum of money that your partner can invest for an income stream.
In short, the purpose of life insurance is to ensure that your family will, as far as possible, be able to afford the life you planned to have. Life insurance is a way to prevent financial trauma from compounding the emotional trauma they would inevitably suffer upon your death.
Some possible lifestyle consequences for families when a parent passes away can include:
- Having to move house due to financial pressures
- Having to move schools
- Cutting back on sporting and social activities
- Reliance on friends and extended family for financial and/or child-caring assistance
You can compare life insurance here.
Total and Permanent Disability Insurance (TPD)
Emotionally and physically, a serious and permanent illness or injury disrupts your life forever. Without appropriate insurance in place it also has the potential to devastate your finances as well.
Total and permanent disability (TPD) insurance pays you a lump sum if you become totally and permanently disabled. The definition of total and permanent disability varies between insurance companies but it essentially means you are disabled to the extent that you will probably be unable to work again. In this instance, it’s great to have a lump sum of money that can go towards your immediate medical needs as well as to clear any outstanding debts. TPD insurance can be used for this purpose, as well as others.
There are a range of considerations when selecting a TPD insurance policy. Common factors you should take into account include:
- The definition of TPD. Check the specific definition of “total and permanent disability” with your chosen insurance company as this can vary between providers.
- Own occupation – or any? Some insurance policies will pay out if you are permanently unable to perform the duties associated with your own occupation; some will only pay out if you are unable to perform any occupation to which you may be suited. Consider which of these definitions you should be insured for.
- A linked life insurance & TPD policy? Generally it will be more cost-effective for you to purchase TPD insurance as part of a life insurance policy, rather than as a stand-alone product.
- A buy-back option. This is an additional benefit that can be purchased if you have a linked life insurance and TPD insurance policy. If you make a TPD claim, a buy-back option gives you the ability to increase your life insurance sum insured by the amount that you have claimed.
You can compare TPD insurance here.
Trauma insurance is similar to TPD in that it provides a lump sum of money due to illness or injury. However, it differs in that the incapacitation does not need to be permanent, and trauma policies also cover specifically-defined events.
As a basic guide, a trauma insurance policy may be used to:
- Provide a lump sum for immediate medical needs
- Pay off any personal debts
- Provide a cash buffer
Income Protection Insurance
Income protection insures you for a set level of your income (commonly 75% of your gross salary) for a certain length of time. In the event that you cannot work due to illness or injury, your income protection insurance will continue to pay you at the agreed level and for the agreed length of time.
When choosing an income protection policy, you will need to decide:
- The waiting period. Typically, income protection policies will have a waiting period; that is, a period of time that you must be non-working before the insurance cover kicks in. This waiting period can range from two weeks to two years, so the key question to ask yourself is how long you could afford to be without an income. Do you have plenty of savings tucked away, or long service leave owing? Perhaps a three-month waiting period will suit you. Have a large mortgage and no cash buffer? You may need the shortest waiting period possible. The length of the waiting period will affect the cost of the insurance – the shorter the waiting period, the more expensive the insurance premiums will be.
- The payment period. Income protection policies will only continue to cover your lost salary for a certain length of time and it is up to you to decide what length of time this should be. Typically you may choose a specific length of time, such as two or five years, or nominate payments to continue until a certain age (such as 65). The length of benefit period will also affect the cost of your insurance.
It’s important to note that, unlike other types of personal insurance, the premiums on income protection insurance policies held by you personally are a tax-deductible expense. You can compare income protection policies here.
How to Buy Life Insurance
Just as with many other products nowadays, there is more than one way to buy personal insurance. In fact there are three main ways, as follows:
Directly from an insurer
Buying direct is essentially a way of DIYing your life insurance. It is up to you to determine what type of policy, policy conditions and sum insured will fit your needs. The advantage of buying life insurance directly through an insurer is speed: as the products tend to be simpler in design, the underwriting timeframe is generally quicker. The main disadvantage is that, as you are not receiving professional advice, you may not be sure what type of life insurance would best suit your needs. You can compare direct life insurance here.
Direct life insurance products appeal to people who know what they want and like the idea of having a straightforward life insurance policy in place to protect their family and assets, should the worst happen. Find out more in CANSTAR’s 2014 Direct Life Insurance Star Ratings report.
Through an adviser
Depending on your personal situation, buying life insurance through a financial adviser may work out to be more cost-effective than buying directly. It also enables you to receive professional advice in relation to what insurance will best suit your needs.
Receiving advice doesn’t have to be time consuming – you can apply over the phone if you want to. The main potential disadvantage is the time taken to underwrite the policy: because the policies provided via advice tend to be more comprehensive products, they can take longer to be assessed and approved by the underwriting department. It can be a small price to pay, though, for the guidance you receive. You can compare advised life insurance here and find out more in CANSTAR’s 2014 Advised Life Insurance Star Ratings report.
Through your superannuation fund
The advantage of holding life insurance within your superannuation fund is that, as the premiums are deducted from your superannuation account, the policy cost is not hitting your hip pocket in the short term. Generally there is also a base level of insurance cover available with no need for underwriting.
Cost of Life Insurance
When it comes to paying for your personal insurance, a myriad things affect the premium. Some of the main factors include:
Your sex: Whether you are male or female can affect the cost of your personal insurance. All other factors being the same, men tend to pay more for term life insurance, for example, whereas women are charged more for income protection insurance. The male/female price divide is based on life expectancy and other risk factors that the insurance provider believes are relevant.
Your age: Obviously your age (and associated life expectancy) will affect the cost of your personal insurance products. As an example, this chart shows average annual term life insurance premiums by age and gender. Note the rather sharp increase in cost somewhere south of 45.
Your current and family medical history: The cost of personal insurance is based in part on the likelihood of your needing to make a claim, so your medical history and current state of health is a crucial part of this calculation.
Your occupation: Your occupation – and the potential risks of injury, death or illness associated with that role – will partially determine your insurance premiums. As an example, CANSTAR research has found that childcare workers pay a higher per-dollar cost, on average, for their income protection insurance than university lecturers. Similarly, a paramedic can pay more than twice as much, on average, per dollar of income protection than a medical specialist.
Your hobbies: Do you indulge in skydiving? Scuba diving? Jet-skiing or motor racing? There are a host of leisure activities that can raise the cost of your insurance cover – or even spark an exclusion.
Your smoking status: There is no excuse for being unaware of the health risks associated with smoking. And in addition to the costs of tobacco, the increased cost of insurance will also be a hit to your finances – smokers face premiums that are potentially double those of their non-smoking counterparts.
The good news is that if you kick the habit, you can apply to have your premiums lowered. Be aware, though, that to be classed as a non-smoker you must have abstained from smoking anything at all for a period of 12 months. Even one cigarette over that 12-month period will see you classed as a smoker for insurance purposes.
Your weight: According to the Australian Institute of Health and Welfare (AIHW), three in five Australians are now overweight or obese – that’s 12 million of us. If your body mass index (BMI) is outside a healthy range, your risk of various chronic diseases and injury increases. Often, your personal insurance premiums will also reflect this increased risk.
How much life insurance do I need?
The amount of life insurance that you need will depend on a whole range of personal and lifestyle factors. Some considerations include:
- The amount required to pay any debts
- A cash buffer to allow some unpaid leave and immediate expenses
- The amount required to fund any future goals
- The amount required to fund a replacement income
- An estimated amount to fund medical costs and home modifications
Life Insurance Glossary of Terms
Please note that these are a general explanation of the meaning of terms used in relation to superannuation funds and related investment activities.
Policy wording may use different terms and you should read the terms and conditions of the relevant policy to understand the inclusions and exclusions of that policy. You cannot rely on these terms to the part of any policy you may purchase.
Refer to the product disclosure statement and Canstar’s FSG.
Accident and Sickness: full cover for all injuries or sickness.
Accident Only Cover: this type of cover only insures you in the event of an accident e.g. cancer would not be covered.
Agreed Value: (guaranteed or endorsed) is an agreed amount of monthly benefit on your income protection policy, a bit like when you insure your valuable restored 1953 FJ Holden for an agreed amount.
Benefit Period: is the maximum period of time your income protection policy will pay you for e.g. 2 years or to age 65.
Duty of Disclosure: when you complete an insurance application you are required to disclose every matter you know about your health, occupation, sport activities and income. If you fail to comply, you may come unstuck at claim time e.g. when the insurer writes to your doctor or Medicare to obtain your health history.
Exclusion: the insurance company may exclude a hazardous sport/activity which means you will not be covered if you become injured, sick or die from e.g. motor racing.
Financial Planner: means someone who is a licensed adviser and holds an authorised representative number of an Australian Financial Services Licensee.
Guaranteed Future Insurability: is the option to increase your sum insured without having to provide health evidence or go through the underwriting process. Usually this option is available on a defined certain event e.g. marriage, birth of a child, or increase your mortgage.
Income Protection: is cover designed to replace 75% of your income when you cannot work due to a sickness or accident and some policies also cover you if you can only work in a reduced capacity e.g. part-time while you are recouping.
Increasing Claim Payment: this is generally an extra cost option but simply offers a “pay rise” each year in line with CPI when you are on claim.
Indemnity: means you will have to prove your income at claim time, a bit like market value on your car insurance.
Level Premium: the premium is calculated and based on your age at the start of the policy. The premium for any increase in the sum insured or income protection monthly benefit is calculated at the start date of the increase, based on your age at that time.
Occupation Category: grouping together occupations with similar duties and risk levels.
Premium Loading: the insurance company may offer you terms asking you to pay a higher price due to a risky factor e.g. overweight, smoker with high blood pressure – heart attack waiting to happen!
Stepped Premium: the premium will be recalculated (and will usually increase) on each policy anniversary based on your age at that time.
Term Life Insurance or Death Cover: it covers you in the event of death or being diagnosed with terminal illness with less than 12 months to live. Beware some death cover within superannuation may not have a terminal illness benefit.
TPD any occupation: means you are covered for any occupation e.g. a surgeon could become a G.P. and continue to work and earn an income.
TPD own occupation: means you are insured for your own occupation in which you work e.g. if a surgeon cut his thumb off and could no longer do surgery, the insurance company could not make him become a G.P.
Trauma/Critical Illness Insurance: is a defined event e.g. cancer, heart attack and stroke. Majority of policies have an extensive list of conditions covered so it’s worth your while comparing as they do slightly differ from policy to policy.
Waiting Period: is the chosen number days you must be off work before your income protection claim starts. Most insurers pay claims monthly in arrears so e.g. if you chose a 30 day waiting period your 1st claim cheque may not come through until day 60.
Underwriting: the process where the insurance company’s underwriter assesses your application for insurance cover. They look at your health, occupation, sport activities and income figures. The underwriter may accept you as a standard cover (1st class rate) or offer you special terms or may reject you outright.
General articles and guides
- Insurance Line
- Insure Me Now
- Virgin Life Insurance
- Virgin Money
- AIA Australia
- AMP Life
- Asgard Capital Mgnt
- Asteron Life
- Macquarie Life
- MLC Insurance
- Zurich Australia