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.

According to figures from the Australian Prudential Regulation Authority (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.

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.

Additionally, 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.

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.

You can also use our Life Insurance Needs Calculator to get an idea of how much cover you may need.

How much does term life insurance cost?

The cost of life insurance depends on a variety of factors that can include your age, your gender and whether or not you smoke. Typically, males will pay more for life insurance than females. For example, according to Canstar Research, a non-smoking woman in her 30s would pay about $35.49 per month, on average, for a direct life insurance policy with a benefit of $500,000. In comparison, a non-smoking man in his 30s would pay approximately $46.95 a month, on average for the same amount of cover.

To give you an idea of life insurance costs for men and women of different age groups and smoking statuses, Canstar Research has calculated the average monthly premiums across the life insurance providers we rated in our latest Star Ratings.

Average Monthly Direct Life Insurance Premiums
Age Female Male
Non-Smoker Smoker Non-Smoker Smoker
20s $32.71 $52.39 $48.53 $77.69
30s $35.49 $59.09 $46.35 $84.30
40s $64.22 $118.08 $79.92 $163.54
Early 50s $123.10 $224.40 $164.84 $330.82
Late 50s $204.31 $355.57 $302.45 $579.45
Source: www.canstar.com.au. Data from the Canstar 2020 Direct Life Insurance Star Ratings (May 2020). Monthly premiums based on $500,000 of cover.

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 can also take a look at the top life insurance policies currently on our database.

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.

This article was reviewed by our Finance Editor Sean Callery and Sub Editor Tom Letts before it was published, as part of our fact-checking process.

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