Life Insurance

What is life insurance?

Life insurance (sometimes called ‘term life’) is a product that pays out a sum of money to your family/beneficiaries in the event of your death, or if you’re diagnosed with a terminal illness. These funds can be used to help your family pay off debts (e.g. home loans), send your kids to school, or act as a nest egg for your partner’s retirement.

So, how much life insurance do you need? Research firm Rice Warner suggests roughly 10 times what you would typically earn in a year. Life insurance premiums are different for every person, as they are calculated based on your health, how you decide to structure your premiums, and much more.

One of the more serious conversations every Australian will need to approach is talking about what happens to our families when we pass away. This topic can be extremely confronting because:

  1. we have to face our own mortality, and
  2. we have to make peace with the fact that we’re not always going to be there for our loved ones.

This is where life insurance enters the conversation.

What is the purpose of life insurance?

Typically, life insurance is an agreement that if you die, or are diagnosed with a terminal illness, a sum of money will be paid out to (typically) your spouse or children. You can also have this death benefit paid to other members in your family (i.e. parents, siblings, etc).

At a terrible moment in time, life insurance can help you take care of the financial uncertainties your family will likely endure after you’re gone. Financial obligations such as mortgage repayments, everyday living expenses, funeral costs, children’s education fees, and debts should all be taken into consideration when discussing a suitable life insurance policy.

In 2016, more than 158,000 deaths were recorded in Australia, with coronary heart disease being the leading cause of death. These grim figures highlight our own mortality, and place emphasis on life insurance’s role if the worst were to happen.

Life insurance provides your dependants with the peace of mind to start future-proofing their lives should the unthinkable take place.

concept housing a young family. Mother father and child in new house with a roof

What are your options with life insurance?

Generally, there are four different types of cover under the banner of life insurance. These options depend entirely on your circumstances and needs. Like most insurance policies, choosing a higher level of cover will cost you more, but usually offers a broader level of financial protection.

The main types of life insurance cover are:

Term life insurance 

Otherwise known as ‘death cover’, this level pays a set lump sum when you die. The sum of money goes to the people nominated as your beneficiaries on your policy.

Total and permanent disability cover (TPD) 

This level of cover assists you by paying a lump sum in the case of serious injury, or permanent disablement. This sum is designed to support you with rehabilitation and living costs if you can no longer return to work. TPD insurance differs from insurer to insurer, and can be taken out in conjunction with a life insurance policy, or as an individual product.

Trauma cover 

Offers cover if you’re diagnosed with a terminal illness or injury, such as cancer, heart disease, stroke, and other life-threatening conditions. Also known as ‘critical illness cover’, trauma insurance pays a lump sum if you suffer a major medical incident (such as cancer and heart disease), and is ideal for Aussies who want to safeguard their health.