What is Term Life Insurance?

Term life insurance is the type of life insurance you’re generally most likely to come across in Australia. It’s designed to provide a financial benefit in the event of terminal illness or death.

What is considered life insurance can vary in Australia, with the Australian Prudential Regulation Authority (APRA) using the categories of death cover, total and permanent disability (TPD) cover, disability income insurance (DII), trauma cover, consumer credit insurance (CCI), funeral insurance and accident insurance.

With so many different types of life insurance, this article focuses on death cover, which is also called term life insurance.

To find out more about getting term life insurance and to compare your options, you can read our annual Life Insurance Star Ratings report.  You may also like to compare life insurance options, including the possibility of multiple types of cover and discounts, with Canstar.

What is term life insurance?

Term life insurance provides a lump sum payment to your nominated beneficiaries (your spouse and children, for example) when you die or are diagnosed with a terminal illness. It can help your loved ones to pay any debts that you may have together (such as a mortgage), and for parents it can help provide for the future needs of your children (such as schooling costs, which can be considerable). It can also provide a lump sum of money that your partner could potentially invest to help provide for their future needs.

Life insurance
Source: Jane Kelly (Shutterstock).

If you’re diagnosed with a terminal illness, a life insurance payout could help your family to cover the medical costs associated with hospital care or treatment.

The name “term” life insurance refers to the fact that this kind of policy only provides coverage for a set term. If you die or develop a terminal illness within the covered term, you or the beneficiaries under the policy can make a claim and – if it’s approved – receive a benefit. However, no benefit will be paid outside of the covered term. This is in contrast to whole life insurance – a type of cover no longer sold in Australia –  which came with a fixed premium and typically covered the policyholder for their entire life, so long as they continued to pay their premiums.

In short, the purpose of term life insurance is to help ensure that your family can still afford the lifestyle you planned to have and to prevent financial troubles from compounding the emotional trauma of losing a loved one.

Can I find out how providers handle life insurance claims and disputes?

As part of a world-leading joint project between the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC), publications and a comparison tool are available to help Australians compare life insurers’ performance in handling claims and disputes. You can view claims and related dispute information, if this is of interest, in the Moneysmart life insurance claims comparison tool.

According to figures from APRA, life insurers paid out just over $10 billion to Australians and/or their dependents as a result of a terminal illness or the death of a policyholder in the year ending June 2020.

How much term life insurance do I need?

Whether you should take out a term life insurance policy and the amount of cover you should have (your “sum insured”) will depend upon both your family and financial situation. In general, though, a life insurance policy’s benefit amount could be calculated in order to:

  • Provide a lump sum to pay out all debts you owe (e.g. mortgage, car loan, credit cards).
  • Provide a lump sum for the beneficiary to invest for future income.
  • Provide a lump sum to cover any known, large future expenses (such as school fees or an adult child’s wedding).

While you may have life insurance through your super fund, that may not necessarily provide enough cover, depending on your life stage and financial situation.

How much does term life insurance cost?

The cost of life insurance depends on a variety of factors that can include your age, whether you are male or female, your occupation and lifestyle habits and whether or not you smoke. Smokers can expect to pay 81% more than an equivalent non-smoker for direct life insurance, and 26% more than an equivalent non-smoker for direct income protection insurance, based on averages with recent Canstar research, for example.

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.

Cover image source: shanid chirammal house (Shutterstock).

Original author James Hurwood. Follow Canstar on Facebook and Twitter for regular financial updates.


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About the author:

Jacqueline-Belesky

Jacqueline Belesky is a Sub Editor at Canstar. She brings over 15 years of experience in corporate communications, media and publishing and holds a Bachelor of Journalism (Distinction) from Queensland University of Technology and postgraduate qualifications in Writing, Editing and Publishing from the University of Queensland. Jacqui was previously a Global Content and Media Manager for ABB in the UK and in Oslo, Norway, and has worked in Australia as a journalist for News Corp and editor for the Queensland Government, John Wiley & Sons and the University of Queensland. Jacqui’s articles have been published in The Courier-Mail, The Gold Coast Bulletin and on www.news.com.au. She also brings experience managing the editorial production of annual reports, financial statements, research papers and supplements on topics such as business sustainability and the global financial crisis. You can follow Jacqui on LinkedIn and Twitter, and Canstar on Facebook.

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