How to Buy Life Insurance

If you’re looking to take out a new life insurance policy, you have three options to choose from – applying directly, applying through an adviser and applying through your super.

Reviewing your life insurance never makes the top of anyone’s to do pile – it simply isn’t all that fun. However, life insurance has never been easier to buy than it is in today’s market. So if you’re in the market for a new policy, here are the three main ways you can buy life insurance:

  1. Directly (direct life insurance)
  2. Through an adviser (advised life insurance)
  3. Through your superannuation

What is 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. 

 

It helps prevent financial trauma from worsening the emotional trauma your loved ones suffer after you pass away. There are four different types of life insurance: 

 

  1. Term cover
  2. Trauma cover: provides a lump sum payment if you suffer a critical illness or injury 
  3. Total and Permanent Disability Cover (TPD): provides a lump sum payment if you become disabled to the point that you can no longer work
  4. Income Protection Insurance: provides a monthly payment for a period of time if you are unable to work 

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Direct life insurance

Direct life insurance is the ‘DIY’ life insurance option – it involves buying life insurance directly from an insurer or one of their affiliates. Direct life insurance can be obtained either online, over the phone or directly from a provider’s branch, and is possibly the simplest way to buy life insurance.

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.

If you’re looking for a direct life insurance policy, then the table below provides a snapshot of products rated by Canstar, with links to providers’ websites. The results displayed below are sorted by Star Rating (highest to lowest) and are based on a non-smoking male professional aged 40-49. 

Pros and cons of direct life insurance

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. We’ll go over the pros and cons in greater detail in the table below.

Life insurance through superannuation

Pros

Cons

The application process is much quicker No professional advice is
It is easier to find a suitable direct life product Cover may not be tailored to your specific needs
You usually don’t have to undertake medical underwriting or exams Direct products can vary in price – some providers may make assumptions about your health and charge you more
People who can’t get cover elsewhere can apply directly You need to do your own research and have clear understandings of definitions and exclusions

Advised life insurance

Advised life insurance is different to direct life insurance. Where direct life insurance involves going straight through an insurance provider, advised life insurance is obtained through the use of a specialised financial adviser.

Buying life insurance through a financial adviser may work out to be more cost-effective than buying directly and it also enables you to receive professional advice in relation to what insurance will best suit your needs. Some people prefer advised life insurance as it removes a lot of the confusion when it comes to choosing a policy; getting professional advice helps narrow your options in terms of policies that suit your needs.

Pros and cons of advised life insurance

The table below displays the pros and cons usually associated with most advised life insurance policies in 2017.

Life insurance through superannuation

Pros

Cons

Advisers can find a policy that better suits your needs Fewer policies are available – Canstar only rates 11 providers at the time of writing
The cost is roughly the same vs direct life insurance The adviser will most likely charge a fee for their services
Advisers can also ensure that there are no holes in your application It can take longer to apply and get your new policy
You can access policies that aren’t open to the public or available online

Life insurance through super

The third method of buying life insurance is to get life insurance through your super fund. Most super funds offer a minimum level of death cover, TPD cover and income protection for their members (although you can call them and cancel this if you wish). One of the main attractions to using superannuation life insurance as opposed to buying either directly or through an adviser is that the premiums are charged directly from your super account. They are automatically deducted, making them easier to manage, and they tend to be cheaper than market life insurance options due to being bought in bulk by the fund providers.

To check what level of life insurance you’re paying through your super fund,  check your annual super statement or go online and look at what you’re paying each month for insurance premiums.

The following table provides a snapshot of superannuation funds with life & income protection insurance. These results have been sorted by Star Rating (highest to lowest) and are based on a 40-49 year old with a super balance between $100,000 and $250,000. 

Pros and cons of life insurance through super

There are disadvantages as well as advantages when it comes to life insurance through super. The following table shows the main pros and cons of using this method.

Life insurance through superannuation

Pros

Cons

It is more manageable (the premiums are deducted from your super account balance) The amount of life insurance may not be enough (this can be offset by pro #5)
No medical exams are needed (most of the time) Trauma insurance may not be available, but is a standard inclusion in policies outside of super
Super policies include both TPD and income protection The payout may take longer in some cases
You can salary sacrifice to cover the cost of the premiums, which can be very tax effective Insurance premiums through super can take thousands away from your retirement fund
Some providers allow you to adjust your cover levels Most providers automatically include life insurance without telling you

You can read a more in-depth explanation of these pros and cons here.

What would happen to your family if you died? What would happen to you if you suffered a long-term illness or injury? They are questions that none of us like to ask ourselves, but which we do need to face. Insurance can’t prevent something bad happening to you, but it can help to protect your quality of life in the event that it does.

Compare Life Insurance with Canstar

Learn more about Life Insurance

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