Life Insurance and Income Protection Comparison in Australia
Life Insurance provides your financial dependents with a lump sum benefit so they can maintain their current way of life in the event of your death. This payment can cover your mortgage repayments, repayments for other debts such as credit cards and pay for the cost of your funeral. It can also be put towards your family's day to day expenses including food, bills and education.
Review Quotes for Life Cover and Income Protection
There are many life insurance providers operating in Australia so it is important when you are shopping around for a policy that you know how to compare what is available based on your own needs. Most superannuation funds will also include a form of life insurance within your account, so it is important to find out exactly how much cover is in place and for what events it will be paid. Even though you may be automatically covered within your superannuation fund, that doesn’t mean you shouldn’t check for a better deal. The last thing you want is to be stuck with a plan with an insufficient level of coverage.
What Types of Life Insurance Policies are Available in Australia?
The term ‘Life Insurance’ is often used as the generic term for both death and living cover. There are a few other types of life insurance available in Australia besides the popular Term Life Insurance. They are each designed with a specific purpose to protect you and your family from unforeseen events that can occur now and in the future such as death, illness, injuries and permanent disability. It is important to assess your needs to determine what type of life insurance will suit you the best. Life insurance policies include:
- Death cover (Term Life Insurance)
- Income protection
- Total and permanent disability (TPD)
- Trauma insurance
Term Life Insurance in Australia Explained
What is Term Life Insurance?
Term life insurance, also known as death cover, is a type of life insurance that provides coverage for a specified amount of time or term. It provides a lump sum payment to your dependants if you pass away, or an approved medical practitioner has diagnosed you with a terminal illness with less than 12 months to live.
Most term life insurance providers will allow applicants to insure themselves for periods of 1, 5, 10, 20 or 30 years. Each provider will undertake a process of underwriting when assessing each applicant for life cover. This can often involve the applicant completing a medical examination and answering personal questions. It is essential for all buyers to take the time to research the different policies available and consider what features are necessary for their situation. Your decision should never be based purely on the estimate quote for your monthly premium.
Key Features of Term Life Cover
- Terminal illness feature: If the person insured suffers from a terminal illness, then the insurance company will pay up to 100% of the benefit to you in advance. This allows you to cover medical fees for end-of-life care.
- Indexation: The benefit payable and premium payments of the term life insurance policy increases according to the Consumer Price Index (CPI).
- Guaranteed Future Insurability: Provides the policyholder with the option of renewing the life insurance policy at the time of expiration without having to reapply and take further medical underwriting.
- Funeral Advancement Benefit: Allows an advanced payment of the sum insured to help cover immediate funeral expenses in the event of your death.
- Financial Planning Benefit: Allows a benefit to be paid to cover expenses for professional financial advice from a qualified financial adviser in regards to your benefit payment.
Income Protection Insurance for Australian Workers Explained
What is Income Protection Insurance?
Income protection insurance provides a monthly benefit payment of up to 75% of your regular income, if you are unable to work in the event of an illness or injury. This allows the insured person to keep up with daily expenses such as groceries, bills, debts, rent or mortgage. Policies can also contain certain benefits that will provide policyholders with payment to cover costs associated with rehabilitation and nursing care.
An Income Protection insurance policy can be tailored to suit your needs. You are able to adjust and customise the following features of your death cover:
- Benefit period: For how long do you want a monthly benefit to be paid in the circumstance of injury or illness? The longer you want to be paid, the more expensive you Income protection premiums will cost.
- Waiting period: How long are you willing to wait from the time of injury or illness, until the first Income protection payment? One month? One year? Perhaps you will need a supplement income straight away? The longer you are willing to wait, the cheaper your Income protection premiums will be.
- Agreed Vs. Indemnity Value: The agreed value policy bases the monthly benefit on your income at the time of application. It is generally more expensive than the Indemnity value policy, which assesses your circumstances at the time of claim.
Key Benefits of Income Protection
- Increasing Claims Benefit: Ensures that your benefit amount increases each year in line with the CPI once a claim has been made and monthly payments have commenced. This allows the policyholder to be able to keep up with the rise in the cost of living.
- Guaranteed Future Insurability: Will guarantee to increase your benefit payment in line with increases in your salary.
- Day one Accident Cover: The waiting period will be waived if your disability was the result of an accident.
- Home and Family Care: The insurer will pay for the cost of a full time carer or a supplement income for a family member if they are required to take care of you on a full time basis.
- Rehabilitation Incentive: Will help to pay for the costs of rehabilitation care.
- Bed Confinement: Will waive the waiting period and pay benefits immediately if you are confined to a hospital bed.
- Travel and Accommodation Assistance: Will pay for accommodation and travel for family members who need to visit you if you are sick or injured away from home.
Some further considerations:
- Tax treatment of Income Protection insurance? Monthly benefits of Income Protection insurance is not tax deductible as it is treated like your normal salary. However, the premiums are tax deductible.
- Do I still need Income protection if I have WorkCover? Some form of Income protection insurance may be available through WorkCover, however payouts through this coverage is minimal and may not be enough to cover your living costs.
Total and Permanent Disability (TPD) Insurance Explained
What is Total and permanent disability insurance?
Total and permanent disability insurance, also know in short as TPD, provides a lump sum payment if you are totally and permanently disabled and unable to return to work. TPD insurance is designed to cover the costs of medical expenses and rehabilitation costs, reduction of debt, ongoing living expenses and modifications to home and vehicles if necessary for the disability.
Typical definitions of totally and permanently disabled include:
- Loss of two eyes, arms or legs
- Being away from work for more than 6 months due to illness or injury, without the expectation of being able to work again.
Typical definitions of totally and permanently disabled include:
- Loss of two eyes, arms or legs
- Being away from work for more than 6 months due to illness or injury, without the expectation of being able to work again.
Disability definitions in TPD may affect the result of your claim.
- Any occupation: Inability to perform any job that is related or unrelated to your field of study due to an illness or injury.
- Own occupation: Inability to perform the job you are employed in and have received training in due to an illness or injury.
- Home-maker occupation: Inability to perform domestic duties due to illness or injury.
Key Benefits of Total and Permanent Disability Insurance
- Death Benefit: A benefit may be payable in the event of your death, given that TPD cover is a stand-alone policy.
- Partial Disability Benefit: A portion of the sum insured on your TPD insurance may be payable in the event of permanent loss of the use of one arm, one leg, or sight in one eye.
- Guaranteed Future Insurability: This feature allows you to increase the coverage of your policy though any major changes in your life situation such as marriage, children or mortgage. You will not need to take further medical examinations, even if your health has changed.
- Indexation benefit: Sum insured will increase annually in line with the Consumer Price Index (CPI).
Tax treatment of TPD insurance
- TPD insurance benefit payments are tax-free. However, the premiums you pay for TPD insurance is not tax-deductible.
Trauma insurance Explained
What is Trauma insurance?
Trauma insurance provides a lump sum payment if diagnosed with a specified life-threatening illness or a traumatic injury. The purpose of Trauma insurance is to cover:
- Rehabilitation costs and lifestyle changes
- Home modifications
- Daily living expenses
- Debts
- Recovery holiday/time off work
Up to 50 different trauma events can be covered under Trauma insurance and what is covered will vary between different insurers so it is important to check and compare. The most common illnesses and diseases that are covered are cancer, heart attacks, stroke and brain tumours. Trauma insurance is generally more expensive than other forms of life insurance, because of the higher chance of a policyholder being diagnosed with one of these illnesses.
Key Benefits That May be Available on Trauma Policies
- Trauma Benefit: Lump sum benefit paid to the insured person if they experience a listed trauma condition or undergoes a certain medical procedure listed by the insurance company.
- Guaranteed Future Insurability Benefit: Policy owner can increase the coverage amount every policy anniversary without having to provide any further medical underwriting.
- Indexation Feature: Sum insured will increase each year by the percentage increase in the CPI.
- Waiver of Premium: Premiums are waived if the insured person becomes totally disabled.
- Accommodation Benefit: Benefits can be claimed on accommodation expenses incurred by immediate family members who are visiting the insured person away from their usual residence.
- Financial Planning Benefit: Insurance company will reimburse expenses for financial advice from a qualified financial planner after a successful claim is made.
Tax treatment of Trauma Insurance
- Any benefit payouts from Trauma insurance is generally tax-free, however trauma insurance premiums are not tax-deductible.
Australian Super Fund and Life Insurance
The life insurance policy included with your superannuation fund usually offers simple default insurance options because you are automatically enrolled when you join the fund, and the premium amount is deducted from your super account.
Super fund life insurance policies generally cover you for death, as well as total and permanent disability cover. You are not generally required to complete a health check due to an automatic application. However, policyholders will often only be provided with the bare minimum of coverage and may not be covered under certain events.
Your Super Fund Insurance premiums are paid from your pre-tax income, however, only financially dependent beneficiaries such as your partner and underage children will receive the death cover benefit tax free. If you are naming beneficiaries such as adult children, tax may be taken away from the insurance payout. The super fund trustee will ultimately decide who receives the benefit and while you can nominate beneficiaries, not all super funds will allow you to make this nomination binding.
Super fund life insurance also has a much lower expiry age, usually around 65 or 70 years of age.
How to Choose a Right Cover Amount for Your Life Insurance Policies?
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Use Life Insurance Finder's Life Insurance Calculator for an approximation of the amount of coverage that you need.
Deciding on the Amount of Income Protection Cover you Need
In general, Income protection insurance can only insure up to 75% of your salary to help you keep up with daily living expenses when you are unable to work. Additional coverage can be added to the 75% however, it must be contributed to your superannuation fund in the event of a payment. Consider the costs involved for you to meet payments for mortgages or rent, bills, debts, maintain a lifestyle and provide for your dependants. If the total amount of your expenses are well below the monthly payout, you have the option to reduce your cover. This way, you are covered only for what is needed and you can reduce your premium.
Use Life Insurance Finder’s Income Protection Calculator for an approximation of the amount of Income protection coverage that you will require.
What Affects Life Insurance and Income Protection Premium Rates in Australia?
The premiums for life insurance policies are based on a range of factors.
- Age: Premiums can increase or decrease as you get older.
- Gender: Women typically live longer than men and so pay lower premiums.
- Smoker: Smoking is a key risk indicator for insurers. Smokers can expect to pay as much as double in premiums compared to a non-smoker.
- Occupation: Some occupations are considered to carry a higher level of risk than others causing an increase in the premium payable. For example a construction worker may pay higher premiums than an office worker.
- Pre-existing health conditions: Health conditions that you have may have an affect on the amount of premium that you pay.
- Genetics: A Life Insurance provider may ask for genetic information or results from genetic tests which includes your family history. This may give the insurer some idea on the chance of the applicant developing some sort of disease or condition.
- Stepped Vs. Level value (Specific to Life Insurance): Stepped value premiums means that your premiums will increase over time, whereas Level premiums mean that you premium payments will remain constant over the period of coverage. Stepped value premiums are usually cheaper than level premiums in the beginning but they then exceed level premiums as time goes by.
- Agreed Vs. Indemnity Value (Specific to Income Protection): The agreed value policy uses the income at the time of application, so the monthly benefit is locked in based on this amount. The Indemnity value policy assesses your circumstances at the time of claim.
- Benefit period and Waiting period (Specific to Income Protection): Your choices on the waiting period and benefit period that you agree on at the start of the contract will affect the premiums that you pay.
Questions to Ask Australian Insurance Providers Before You Buy.
To make sure you’re getting the right life insurance policy for your needs, there are a few questions you should ask your broker or insurance provider before you sign an life insurance agreement:
- What is covered? Make sure you have a clear understanding of the illnesses and events you are covered for and if you will receive a benefit for death by accidental causes. It is important to note that most policies will not cover suicide within the first 13 months of policy application.
- How much will I get paid when I claim? Clarify how much you will be paid as well as the conditions of payment, for example, will the claim be paid if you are diagnosed with a terminal illness? Make sure you have a clear understanding of the companies claim and payment process.
- How much will my premiums cost? Knowing how much you will be paying now and into the future allows you to budget, as well as decide whether a level premium or a stepped premium is better for you depending on your age, occupation and how your financial circumstances are likely to change in the future.
- How can the cover amount be increased? If your circumstances do change and you feel you need a higher amount of cover because you have taken on a larger mortgage or started a family, it might be time to upgrade your cover amount to ensure adequate protection is in place.
- What are the exclusions in my policy? Make sure you understand all of the exclusions of the policy and if there are any optional benefits worth considering for your situation.
- Can I switch or transfer my policies to a different provider in the future? If you already have a life insurance policy and you want to switch to a new provider, you may not need to undergo another health check if your old insurer assessed your health within the last five years. Also make sure you cancel your old insurance policy only after your new policy has been accepted.
- What will happen if I cannot pay my premiums? Find out the insurers policies on what happens if you cannot pay a premium payment. Will they cancel your cover straight away? Do they give you some time to pay them back?
- How much coverage do I need? You may have done the calculation for the coverage amount you need, but it’s always wise to double check with your insurer if the amount is sufficient.
- How long does my policy last? Whole life insurance policies are no longer offered in Australia, so you should clarify exactly how long you will be covered for.
- Will my premiums increase as I get older? You may have the choice between a Stepped premium policy or a Level premium policy. As stated before, it is important to consider your own situation when deciding what is most appropriate for you.
- Will I need to take a medical exam? In most cases, you will need to take a medical exam, however some policies do not require this. The policies that do not require a medical exam are generally more expensive.
- Is my policy renewable? Many life insurance policies have the option for you to renew the policy without extra consideration such as another medical examination.
- Does the benefit amount adjust for inflation? Some insurance providers may charge a fee to adjust your benefit to account for inflation. You payment could differ by a huge amount if it is not adjusted for inflation.
Australian Life Insurance Quotes: Frequently Asked Questions
If you’re new to the process of comparing life insurance quotes online, or you’d simply like more information on how to compare policies, following are the answers to common questions that you may find useful:
How do you get an online life insurance quote?
- Most insurers will have a link to their quote form on their website, where you simply fill in your personal details and the details of your policy needs.
- In most cases your online quote will be returned within minutes, however to go ahead with the application you may need to answer further health, lifestyle and occupation questions.
- You will need to enter your date of birth, gender, smoking status, occupation, policy type and the benefit amount you would like to receive from the policy.
- Once you finalise payment online for your life insurance, your cover is active.
- Make sure you travel directly to a life insurer’s application page, rather than following a link in an email, and that the page you enter your information into has ‘https’ in the address bar, and a closed lock symbol in the status bar.
How long does an online quote take?
What information is required to complete an online quote?
How long is it before the life insurance cover is active?
How are online life insurance quotes and applications secured?
Choose a Life Insurance Policy With an Australian Insurance Provider
If you are considering Life insurance as protection for you and your family's financial future, then perhaps you should compare the different life insurance policies and providers. Researching the differences between Life insurance policies will allow you a better understanding of the intricacies and different benefits offered between Term cover, Income protection, Trauma and TPD insurance. Make a secure enquiry via the Life Insurance Finder enquiry page to ensure you make an informed decision on your life insurance. Don’t forget to ask all the questions listed above before you buy!
do u have life insurance policies that mature when a person turns a certain age eg 65 etc
Thank you for your question. The insurance market has matured over the last few decades and the policies that previously matured at age 65, Whole of Life or Endowment policies were found to be lacking in benefits to the consumer and had an inbuilt investment component that delivered on average a below market rate for that investment . In the insurance market now, people purchase term insurance policies for the sum insured they require for considerably less than they paid for the older style policies and then invest the difference. There are investment policies issued by insurance companies that have no insurance component but are pure investment and benefit from the advantageous tax concessions applying to life companies.
It is now beneficial for the consumer to purchase their insurance policies in this way as it both saves them money and allows for more money to be invested to achieve better investment returns. We are happy to discuss options that best suit your needs.
Hello,
My husband is currently 65 years of age & I am 59 years. Do you have basic Life insurance to cover us? If so, are you able to give us a quote?
Many thanks
Trish
Hi Trish,
Thanks for your question. We will require a little bit more information from you, for example how much cover would you like and also, are you smokers. We will certainly be able you very competitive quotes and answer all of your questions. We also have authorised representatives in all states and we can recommend one to you if you would like information via email or over the phone.
I wish to sell my policy, any suggestions? Feel it is all to cosy selling it back to the AMP.
Hi Neil,
You will find that there are not many options for selling a policy. Is it an old endowment or whole of life policy? You can Google and you may find a few companies that do offer to but policies, but the value will be less than the payout of the policy when the term finishes.
how do i know my policy with you ??
Hi Duc,
I am sorry but we will need some more information from you to properly address your enquiry. It is unclear if you have already taken out a policy through our service or are looking to take out a new policy. You may wish to contact an insurance consultant on 1300 743 254 or make an enquiry via the enquiry form located on the homepage http://www.lifeinsurancefinder.com.au/
All the best and good luck with your enquiry.
Please explain the differences/advantages/disadvantages between income and life insurance?
Thanks
Hi Sam,
Thank you for your enquiry. Here is a quick summary of the two types of cover;
Life Insurance
Differences and Benefits
*Provides a lump sum payment to the policyholder and/or their beneficiaries in the event of their death or if diagnosed with a terminal illness.
*This benefit payment can be used to cover any existing debts and to ensure their is money to provide financial security to their family after they pass away. The benefit may also be used to cover any medical or funeral costs that may have arisen.
*Life Cover can often be bundled with Trauma Insurance to provide cover to the policyholder in the event that they suffer a specified trauma conditions. This may include cancer, heart attack, stroke among many others. As an example, AMP provides cover for up to 50 different trauma conditions.
*Some policies will also provide Child Cover providing the policyholder with a benefit payment if their child becomes critically ill or passes away.
Disadvantages
*Premium payments are generally not tax deductible. Premium payments may be tax deductible for life cover through Superannuation if the policyholder is self employed.
*Can be more expensive for people that smoke, participate in dangerous pastimes or have preexisting medical conditions. That said, there are hundreds of different policy options from different providers that have different criteria when assessing applicants.
*Premiums increase with age as policyholders are considered to present a greater degree of risk to provider. This can be avoided by taking out a policy with a level premium structure. While premiums may be higher to begin with than a stepped plan, they will generally remain the same over the life of the loan.
Income Protection
Differences and Benefits
*Provides an ongoing benefit (usually paid monthly) of 75% of the insureds regular income in the event that they are seriously injured or ill.
*Offers additional benefits and policy options to help cover rehabilitation and nursing costs while the insured recovers.
*May provide additional benefit payment to spouse if they are forced to take time off work to assist injured partner resulting in a reduction in their regular income.
*Many policies will offer death or terminal illness benefit which will pay a multiple of the monthly benefit payment to the policy owner in the event of death or terminal illness.
*In comparison to WorkCover, income protection offers a benefit payment for injuries and illness that occur outside of the workplace.
Disadvantages
*Most policies will not provide a insurance companies will not provide a benefit payment in the event that the insured becomes unemployed. Some general insurers will offer this feature but there are certain restrictions around when a benefit can be paid. Many insurance providers will waive the policyholders premium payments while they are involuntarily unemployed for a specified period.
*Applicants are under to receive cover for a illness or injury that they are currently suffering. Some insurers may apply a premium loading depending on the nature of your condition. That said, you can apply for cover for future events and different insurers have different criteria for assessing conditions. Best practice is to speak with a consultant as they will know what insurers are more inclined to provide affordable cover.
We hope that offers some insights into the main benefits of both life insurance and income protection. You may like to take a look at our beginner guides to learn more of the benefits of these two types of cover;
http://www.lifeinsurancefinder.com.au/a-beginners-guide-to-life-insurance/
http://www.lifeinsurancefinder.com.au/the-beginners-guide-to-income-protection/
If you are thinking of applying, you can make an enquiry with an insurance consultant via the enquiry form located on the homepage.
http://www.lifeinsurancefinder.com.au/
Thanks again for your enquiry and all the best.