What features should you look for in direct life insurance?

What is Direct Life Insurance and what should you be looking for in an outstanding value policy?

Direct Life Insurance is life insurance that you apply for and buy directly from the insurance provider. This is different to Advised Life Insurance, which are policies that you apply for and buy through a financial adviser.

Direct life insurance products are popular, in part because of their DIY nature. Not all policies are created equal, though, and some have benefits that make them stand out above the crowd. So if you’re looking at buying a Direct Life Insurance policy, read on to find out what we look for in a policy – and what you should be looking for, too.

In addition to competitive pricing, Canstar considers many product features and benefits to be an important part of an outstanding value Direct Life Insurance policy.

The life insurance basics

When you are considering personal insurance cover, the types of policies that you should look at include:

Death Cover: A lump sum payment that is often used to pay off all debts and provide funds for future goals (such as your kids’ education) if you pass away or are diagnosed with a terminal illness.
Total and Permanent Disability Cover (TPD): A lump sum payment that can be used to pay off all debts and provide funds for future goals if you become totally and permanently disabled so that you are unable to work. This should also include funds to enable your partner to either take time off work to care for you or hire a carer.
Trauma Cover: A lump sum that can help to alleviate financial stress after a traumatic but recoverable health event such as a heart attack.
Income Protection: An income replacement payment that tends to cover around 75% of your usual income, paid to you in regular instalments for a certain timeframe while you are unable to work because of illness or injury. Canstar also researches and rates direct income protection

Direct Life Insurance

When it comes to direct life insurance specifically, we have outlined below some things that you should consider.

Some added extras

Other optional cover you may come across in a Direct Life Insurance policy is a Funeral Benefit, which provides a lump sum when you pass away to pay for your funeral expenses. The policy should specify a higher lump sum to be paid out if you are overseas at the time of death, to allow for repatriation (bringing you home for the funeral).

One rider (an extra cover option) you can add to many Direct Life Insurance policies is Child Cover. This provides a lump sum payment upon certain injuries and illnesses, so that Mum or Dad can stay home to take care of them without worrying about the time off work. Child Cover also provides a lump sum if your child should pass away, but we sincerely hope you never have to face that situation.

You should be able to obtain a quote without the need to get a medical examination. You may be able to view the premium rates online in the Product Disclosure Statement (PDS).

How much life insurance do you have?

The sum insured is a key figure you need to think about when taking out life insurance. This means how much you are insured for – how much you or your family would receive if you became disabled or passed away and a claim was paid on the policy.

That sum insured limit may increase every year with indexation with most providers. However, not all insurers increase the sum insured.

Canstar assesses Direct Life Insurance policies based on a sum insured of three different levels: $250,000, $500,000, and $750,000. 13 of the 32 direct life insurance providers we rated allow customers to apply for more than $1.5 million in cover. 28 will let you have $1 million or more.

Compare Term Life Insurance

Pre-existing conditions

When you’re applying for life insurance, you should find out what, if any, pre-existing conditions may be excluded entirely from coverage. This will depend on your personal medical history; for example, if you have previously had a heart attack, you might not be able to obtain coverage with some insurance providers for death or disability caused by another heart attack or anything related to the previous heart attack.

Sometimes pre-existing conditions are only excluded for a certain time period, like a waiting period. Common exclusion periods we see in policies on our database are 12, 24, or 60 months.

One thing you should be aware of is that when you start a new policy or your insurance provider changes, the waiting periods for pre-existing conditions may start all over again unless you negotiate otherwise.

Insurance exclusions

Risky occupations or dangerous hobbies could mean you will not be insurable, or at least you won’t be covered if an insured event happens while you’re doing a dangerous activity. Other exclusions usually include injuries or death caused by:

Suicide
A riot or political coup
Criminal activities
Terrorist acts
Travel to a country marked with the “Do Not Travel” warning by government authorities
War
HIV/AIDS
Abuse or influence of drugs or alcohol

Terms and conditions

Are the premiums for the policy you’re considering stepped, level, or frozen? Stepped premiums mean the annual premium becomes more expensive as you age and an insured event such as disability or death becomes more likely. Level premiums mean that while the annual premium may be more expensive initially, but it is based on your age when you start the policy and it stays the same and does not increase in cost as you age. Some policies will allow you to “freeze” your premiums. Your annual premium does not change as you age, but your sum insured will gradually decrease.

Can you pay the premiums monthly at no extra cost? It might be more helpful to your budget to pay a small amount each month than to pay a lump sum each year for your insurance.

Many policies will waive premiums during the insured person’s period of illness or injury. This is a vitally beneficial feature, as it enables an insured person to focus on their recovery without worrying about how much money is going out for insurance on top of medical bills and the usual expenses like rent and groceries.

Free financial advice

Does the life insurance policy offer a benefit amount that your dependants can claim in order to visit a financial planner and get advice about the how to invest the payout from your insurance? The insurance provider may even make financial planning advice available for you – and if so, ask how much that service costs. Getting advice about how to deal with an insurance payout may not be important for all consumers’ families, but it does provide some worthwhile additional value.

Grief counselling

Some insurance policies will include a benefit to cover the cost of grief support counselling. Qualified grief counsellors can be found through the Australian Psychological Society (find a psychologist in your area or phone the Referral Service on 1800 333 497).

How to find value in life insurance features

Here at Canstar, we assess what an insurance provider can offer to 20 different customer profiles, based on factors such as your age, gender, and smoking status. In fact, we’ve compared 32 Direct Life Insurance policies from 28 different providers, to give 5-star ratings and an award to the policies that offer outstanding value.

So if trawling through endless product disclosure statements doesn’t sound like your cup of tea, feel free to sit back and let us show you how we’ve already compared the options on offer for your customer profile.

If you’re comparing life insurance policies, the comparison table below displays some of the policies currently available on Canstar’s database for a 30-39 year old non-smoking male working in a professional occupation. Please note the table is sorted by Star Rating (highest to lowest) followed by provider name (alphabetical) and features links direct to the provider’s website. Use Canstar’s life insurance comparison selector to view a wider range of policies.

Compare Direct Life Insurance Policies

Learn more about Life Insurance

TJ Ryan

TJ was previously a finance journalist at Canstar, preparing a variety of articles from simple-to-understand explainers of financial products through to reporting on industry trends. She graduated from QUT with a Bachelor of Law and Bachelor of Fine Arts, Creative Writing.

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