Financial protection for your loved ones when you die
A sudden death can place financial stress on those who depend on you. If this happens, life cover can help them pay the bills and other living expenses.
What is life cover
Life cover is also called ‘term life insurance’ or ‘death cover’. It pays a lump sum amount of money when you die. The money goes to the people you nominate as beneficiaries on the policy. If you haven’t named a beneficiary, the super trustee or your estate decides where the money goes.
Life cover may also come with terminal illness cover. This pays a lump sum if you’re diagnosed with a terminal illness with a limited life expectancy.
IMPORTANT: Accidental death insurance is different from life cover. It will only pay out if you die from an accident. It will not provide cover if you die from an illness, disease or suicide. This type of cover often has a lot of exclusions.
To understand what’s covered under a policy and the exclusions, read the product disclosure statement (PDS).
Decide if you need life cover
If you have a partner or dependants, life insurance can help repay debt and cover living costs if you die.
If you don’t have a partner, or people who depend on you financially, you may not need life cover. But consider getting trauma insurance, income protection insurance or total and permanent disability (TPD) insurance in case you get sick or injured.
How much life cover you might need
To decide how much life cover to get, consider how much money you or your family would:
- need — to pay the mortgage, credit cards and any other debts, child care, school fees and ongoing living expenses
- receive — from super, savings, the sale of any investments, your paid leave balance, and support from your extended family
The difference between these is the amount of cover you should get.
Work out if you need life insurance and how much cover you might need.
If you need help deciding if you need life cover, and how much, speak to a financial adviser.
How to buy life cover
Check if you already hold life insurance through super. Most super funds offer default life cover that’s cheaper than buying it directly. You can increase your level of cover through your super fund if you need to.
You can also buy life cover from:
- a financial adviser
- an insurance broker
- an insurance company
Life cover can be bought on its own or packaged with trauma, TPD or income protection insurance. If it’s packaged, your life cover may be reduced by any amount paid on other claims in the package. Check the PDS or ask your insurer.
WARNING: Before buying, renewing or switching insurance, check if the policy will cover you for claims associated with COVID-19.
Life cover premiums
You can generally choose to pay for life cover with either:
- stepped premiums — recalculated at each policy renewal, usually increasing each year based on the higher chance of a claim as you age
- level premiums — charge a higher premium at the start of the policy, but changes to cost aren’t based on your age so increases happen more slowly over time
Your choice of stepped or level premiums has a large impact on how much your premiums will cost now and in the future.
Compare life cover
Once you know how much life cover you need, shop around and compare:
- benefits and policy features
- waiting periods before you can claim
- limits on cover
- the cost of the premiums — now and in the future
A cheaper policy may have more exclusions, or it may become more expensive in the future. You can find information about the policy on the insurer’s website or in the product disclosure statement (PDS).
Compare how long it takes different insurers to pay a life cover claim and the percentage of claims they pay out.
What you need to tell your insurer
You need to tell your insurer anything that could affect their decision to insure you. You need to give them this information when you apply, renew or change your level of cover.
Insurers usually ask for information about your:
- medical history
- family history, such as a history of disease
- lifestyle (for example, if you’re a smoker)
- high risk sports or hobbies (such as skydiving)
If an insurer doesn’t ask for your medical history, it may mean that the policy has more exclusions.
The information you provide will help the insurer to decide:
- if they should insure you
- how much your premiums will be
- terms and conditions for your policy
It is important that you answer the questions honestly. Providing misleading answers could lead an insurer to deny a claim you make.
Source: smart money.gov.au