Term Life Insurance in Australia - What Does it Cover and Do You Even Need it?
Term Life Insurance provides a lump sum payment to you or your beneficiaries in the event of your death or if you have been diagnosed with a terminal illness and are not expected to live for longer than 12 months. Term life insurance is often combined with other types of "living insurance" TPD Insurance and Trauma Insurance - these provide a lump sum payment if you become disabled or suffer a trauma event such as stroke, cancer or heart attack.
This guide will help you determine if you even need term life insurance and what steps you can take to help you get quality cover at the right price. If you are ready to receive a quote for cover, simply enter your details in the form below.
- Not sure how much cover you require? Use our life insurance calculator to receive an estimate
What is term life insurance?
Term life insurance provides cover for your financial obligations in the event that you pass away or are diagnosed with a terminal illness. Term life insurance policies will often include the following features:
- A lump sum benefit payout. When you take out a term cover policy, you are paying for an agreed benefit amount which will be paid to your family when you die. The term life insurance benefit will be paid as a lump sum amount, so that your family can use the money to pay off debts such as the mortgage or credit cards, as well as use the money as an income to pay ongoing bills to maintain their lifestyle and goals, such as your children’s education.
- Advance payment for terminal illness. If according to a medical practitioner you are expected to die within 12 months, your policy can pay out the benefit as an advance payment to help with final medical expenses.
- Can be renewed each year. Most policies can be renewed until you reach the age of 99, however, you may not have to renew your policy after you retire, if you have a healthy retirement investment.
- Few exclusions for when a benefit won't be paid. Most plans will have just one exclusion, where the policy won’t pay out if your death is the result of suicide in the first 13 months. Apart from that if you have been honest and detailed on your application, your family will usually be able to rely on a cash payout when you die.
- Additional options available. Since your death is not the only circumstance which could leave your family unable to rely on your income, and so you can add extras to your term life insurance policy such as total and permanent disability insurance and trauma insurance, which can pay a percentage of your income if you are unable to work because of an illness, injury or accident.
When is a good time to take out cover?
This will really depend on your own situation and what you would need to cover in the event of your death. Some key triggers that lead many Australians to take out cover or review their existing cover include buying a house, getting married and having their first child. These events may not apply to you but it is still worth considering the "living insurance" that provide a payment if you suffer a major illness or injury and do not pass away.
What expenses can term life insurance cover?
- Replacing an income for your partner or your family that would be lost if you were to die
- Cover mortgage or rent payments
- Cover your child's education
- Cover other personal debt i.e. car loan
- Childcare if your spouse had to return to work
- Funeral costs and financial planning
- Everyday living expenses
Don't I already have cover in my superannuation?
Most super funds will provide a very basic level of cover life insurance to members. This is usually only a portion of what will actually be required to cover all of your debts/ongoing expenses of your family if you were to pass away. It is possible to either increase or decrease the cover in your superannuation.
Here are some benefits and drawbacks of life insurance through superannuation you might want to consider;
- Generally cheaper as cover is bought in bulk
- Premiums may be tax-deductible
- Premium is not taken from take home earnings
- Premiums automatically deducted
- Reduced health checks during application
- Types of cover available is limited (No Trauma)
- Generally a reduced level of cover available
- Benefit payment can be drawn out as funds are paid to trustee first
- Benefit payment may be taxed
- Reduced range of benefits
- Cover may stop if you change funds
The decision of whether or not to fund your life insurance through superannuation is not always straightforward. You may wish to speak with an insurance consultant to get a better idea of what's best for your situation.Back to top
Is term life insurance tax deductible?
|Life insurance outside of superannuation||Premiums are not tax-deductible|
|Life insurance inside of superannuation||May be tax-deductible if self-employed|
|Life insurance outside of superannuation benefit||Benefit payment is provided tax-free|
|Life insurance inside superannuation benefit||Benefit may be subject to tax|
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How much is term life insurance going to cost me?
The amount you pay for cover will depend on a number of factors including;
- Your age - the older you are the more you will pay
- Your occupation - higher risk occupation may mean you pay a higher premium
- Whether you smoke - smokers are considered higher risk and will pay a higher premium
- Gender - rates vary between genders at different ages
- Pre-existing medical conditions - will depend on the nature of condition and current treatment
Term life insurance rate table
Looking for an example of what you can expect to pay? Check out the table below for an example of annual premium rates from four Australian insurers;
|Insurer A||Insurer A||Insurer B||Insurer B||Insurer C||Insurer C||Insurer D||Insurer D|
Can I get term life insurance without having to do a medical exam?
This will depend on your own situation and if you have had any medical complications in the past. There has been significant changes in recent years to how applicants are assessed and insurers are much more willing to tailor cover to people that have a pre-existing condition.
Most life insurance companies will require you complete a short medical questionnaire when applying for cover. If you meet their entry requirements, you will usually be able to apply for cover without having to undertake a medical exam or provide details of your medical history.
Most direct insurers will allow you to apply for cover entirely online or over the phone if you meet these entry requirements.
Take out over the phone or online with no medical underwriting
|Provider||Types of Cover||Special Offers||How to Apply|
||For a limited time only - save up to 25% on premiums and one month free cover for successful applicants||Get Quote
||Receive a $100 Visa Prepaid Card when you purchase a new Budget Direct Life Insurance or Accidental Death Insurance policy. Terms and conditions apply||Get Quote
||Pay absolutely nothing for your first year of cover and choose either stepped or level premiums||Get Quote
Can I still get whole of life insurance in Australia with a surrender value?
Insurance companies in Australia no longer offer "whole of life" or universal life insurance in Australia. This type of cover was popular in the 1970s and 1980s but has now been replaced by term life insurance in Australia mainly due to whole of life insurance premiums being unable to keep pace with inflation and it being considered to be a poor form of long-term investment.
So what happens at the end of my policy term?
There is no surrender cash value in term life insurance. You pay a premium to have cover in place and if the term runs out or you cancel your policy, you do not receive payment. With term life insurance, you can increase or decrease your premiums to be in-line with what you actually require and combine the protection with other living-insurance to ensure you have adequate cover against both illness or injury.
What are some drawbacks of term cover?
As with any insurance product, its tailored features can mean that term protection presents certain disadvantages in some circumstances, so make sure you are aware of:
- No cash value. One reason that term life insurance is cheaper than whole of life insurance is that it doesn’t accumulate an investment portion. This means that your insurance policy does not accrue any cash value, so if you out live the term of your term insurance, and die after the term has expired, your beneficiaries don’t receive any cash out or death benefit. Therefore, if you survive your policy you don’t see any return on the premiums you have paid.
- Regular renewals and rising costs. As a policy is only valid for the term you’ve chosen, when the policy expires at the end of that term you need to take out a new policy if you want to continue to be covered. However, at the end of the term you are older than you were when you first applied, and may have seen other health and lifestyle changes too, all of which can combine to make renewing your policy more expensive. Plus, term life insurance is not a set and forget insurance product, as you need to go through the application process again and again at the end of each term.
- Your premium will reflect your lifestyle choices. Like most insurers, your premiums will be based on the level of risk you present to your insurer. If you smoke, engage in high-risk activities or work in a dangerous occupation, you can expect to pay more than others. You shouldn't take ever change who you are or your interests to save on your cover but their may be some changes to make to your health to benefit from a lower premium
Looking for cheap term life cover? Here are some traps to watch out for
- Price will often reflect quality of cover...know exactly what you will receive in a claim
- Beware of cover rammed with exclusions of when a claim will be paid for death
- Policies that are extremely inflexible when it comes to adjusting your level of cover and features
- Can you trust the insurer? The last thing you want is a nightmare at claim time because your insurer has gone bankrupt
Handy tips to get affordable life insurance
- Compare multiple options
- Get an idea of how much cover you actually need...do you already have some other cover in place that you can fall back on or assets that could be sold in the event of your death?
- Looking for cover for your spouse as well? Take out cover together to save
- Avoid expensive extras you don't actually need
- Consider whether stepped or level premiums is better for your financial situation
- Stop smoking...you could half your premium payments
- Consider funding your cover through superannuation
- Apply early to lock in a competitive rate...applying later when you are more susceptible to medical conditions will only drive up your premium
- Review your policy every 12 months to see if there is a more suitable/better priced option available.
How do I compare term life insurance policies?
Ready to start comparing policies? Here are some key things to look out for.
- Compare multiple policies, but do not rely solely on price: When assessing different term life policies and comparing the premiums rates for each cover, it is important to be fair in your judgement. The rates on offer should not be the only factor to consider when making your purchase decision. Some term life insurance policy rates may appear to be more affordable, however, they may only come with a basic level of built-in features and benefits.
- Check out the extras that are available: Another factor that will affect your term life insurance rates is your choice of additional features. Make sure that you assess and match your needs carefully with the additional options in place. The last thing you want is to be paying a higher premium for features you don't even need.
- Choice of premium structure - stepped, level premiums or hybrid: Your term life insurance premium rates will vary depending on the premium structure that you have chosen. Stepped premiums are very affordable at the start of your policy, however, they will increase overtime as you get older. Level premiums stay at a specific rate and will not change regardless of your age.
- Ability to bundle cover? Find out if it is possible to bundle your term life cover with other types of insurance i.e. Trauma or TPD. Does this bring a saving?
Some questions to consider when comparing cover
- What sacrifices can I make to afford insurance?
- Who is financially dependent on me?
- Is this a reputable provider?
- How much cover do I need?
- How long should I take out cover for?
- How much money do I need for retirement?
- What are the terms and conditions?
Frequently asked questions
- How do I know how much coverage to take out?
You should take out enough to cover all of your expected final expenses such as medical bills and burial costs, plus the living expenses for your dependents, such as loan repayments for the house and car, credit card repayments, future education costs for your children, plus any other ongoing expenses in your household.
It is important to look at your individual situation, rather than using a catchall formula of simply multiplying your annual income by 10 and choosing that as your cover amount. Remember that your needs and your family’s needs will change and develop in the future and you need to think about how that will be reflected in their living expenses.
- What term should I choose for my term life insurance?
Term life insurance is an ideal option to add extra coverage and peace of mind at times of high financial commitment. Therefore, think about when your mortgage will be at its greatest, your children’s needs will be the highest and your household income may be impacted because one parent is staying at home or working less to take care of the children. For example, if you have young children, you may want to choose a term which allows your insurance to cover your family until your children are out of tertiary education.
- What happens to my policy at the end of the term?
At the end of the term you have chosen for your cover you will have the option to renew your policy on an annual basis without being asked any medical or lifestyle questions, or undergoing a medical test. However, if you choose this option you may be paying higher premiums as the insurer cannot confirm your level of risk.
In other cases a term life insurance policy may have an option to roll over into a whole of life policy, which can then cover you until retirement or your death. Typically you will have a set period of time in which to convert your policy – dictated by each different insurer – and you won’t have to provide any new information about your health or lifestyle if you keep the benefits of the policy the same.
- Do the premiums of term life insurance go up each year?
The premiums will remain the same each year during the term you have chosen. This is known as a fully guaranteed, or level term policy and allows you to budget for your insurance each month.
- How do online insurance quotes compare to the actual costs of insurance?
Getting quotes online for your term life insurance is a good way to gauge the expected costs, however the final cost of your insurance premiums may differ based on what the insurer discovers in the underwriting process. As the insurer assesses your risk factors, your job, your lifestyle, your current health and your family’s medical history, they will calculate a premium based on how likely it is that you will die during the term you have chosen.
- How can I pay my insurance premiums?
Your insurer will generally give you the option to pay your premiums monthly, quarterly, six monthly or yearly. Make sure you check whether there is a loading added for paying your premiums in instalments throughout the year, or for the payment method you prefer – such as credit card or BPAY.
- Can I make changes to my policy during the term?
During the application process you can change and adjust the variables of your policy until you are happy with the final product. During the term of your insurance policy you may have the opportunity to change your coverage amount or your term of coverage at specific intervals during the term, often every two years.
- Are there any additional riders I should consider adding to my term life insurance?
There are a number of extra features you can add to your term life insurance policy to tailor it to your needs, and so you may want to consider the:
- Accidental death benefit rider. Will pay an additional amount above your coverage amount if your death is the result of an accident.
- Children’s term life insurance rider. Can pay a death benefit for each of your children covered under your policy in the event of their death. You can usually add insurance for your child for around $10,000 and $20,000, based on their age and other eligibility requirements.
- Waiver of premium rider. Will make sure your premiums are paid for you if you become totally disabled. There are often age and coverage restrictions which apply.
- Accelerated death benefit rider. Will make an advance payment of part of your benefit amount if you are diagnosed with a terminal illness.
Apply and receive a preliminary term life insurance quote
Term life insurance can be a quick and easy way to protect your family at some of the most vulnerable and expensive times of your lives, so take the time to consider this added protection for your loved ones. There are hundreds of different policy options available in Australia from a range of different insurance providers so ensure you take the time to research each option carefully and assess what is best for you and your family. Each policy will have its own product disclosure statement that is usually available online. Taking the necessary time to read through the policy inclusions and exclusions will save any nasty surprises in the event that a claim is made.
Receive a preliminary term life insurance quote from leading Australian providers