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 APRA figures, 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 March 2019.

What is term life insurance?

Term life insurance provides a lump sum payment to your nominated beneficiaries (your spouse and/or 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 often be considerable). It can also provide a lump sum of money that your partner could potentially invest.

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 and/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 may receive a benefit, but 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 had a fixed premium for the duration of the contract with an investment component and a cash value.

In short, the purpose of term life insurance is to help ensure that your family can still afford the life that 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 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 (e.g. school fees, adult child’s wedding).

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 $36.62 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 29% more, or $47.24 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 rate.

Average monthly premiums: Female Average monthly premiums: Male
Age Smoker Non-smoker Smoker Non-smoker
20s $52.78 $33.38 $79.28 $49.29
30s $60.39 $36.62 $86.40 $47.24
40s $120.00 $65.72 $166.38 $81.41
Early 50s $216.67 $120.17 $322.63 $161.50
Late 50s $339.65 $197.67 $556.52 $293.06

Source: www.canstar.com.au. Premiums current as of 07/06/2019. Based on $500,000 worth of cover for direct life insurance policies rated by Canstar in 2019.

To find out more about getting term life insurance and to compare your options, read our annual Life Insurance Star Ratings report.

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.

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