How life insurance works

A step-by-step guide to help you through the decision-making process.

Running in sand

Firstly, what is life insurance?

“Life insurance” is the general term we give to the range of insurance that looks after you if something unexpected happens to your body or mind.   

They are designed to protect your quality of life and the future you’ve planned for your loved ones.  

The category of life insurance includes: 

  • Life Insurance (sometimes called term life insurance or death cover) 
  • Total Permanent Disability Insurance
  • Recovery Insurance, and
  • Income Protection.

Note: Most people have only heard of the product “life insurance”, so this has become the accepted term for the category also. 

Step 1. Which type of insurance do you need?  

Each insurance protects your life in a different way. So the first thing to consider is, which types of insurance do you need to help you live the life you’ve planned?

Life Insurance logo

If you want to protect your family’s future and give them options if you die or are diagnosed with a terminal illness, then that’s Life Insurance. 

Total Permanent Disability Insurance logo 

To help you live a better quality of life if you become permanently disabled and can’t work, then Total Permanent Disability Insurance could be for you. 

Recovery Insurance logo 

If you have a serious illness like cancer, then Recovery Insurance helps support you while you recover.  

Income Protection logo 

If you want to have an income to pay your living expenses, if you can’t work as the result of an illness or injury, then that’s what Income Protection is for. 

 

Step 2. What do you want to be covered for?

Life insurance and cover types

Now that you’ve chosen the insurance you need, what do you want to be covered for? For example, with Life Insurance you can choose to be covered for Accidents, Illnesses and Adventure Sports.

Let’s take a look at what this actually means: 

Say you choose Life Insurance, and you want to be covered for Accidents and Adventure Sports. 
This means you would be eligible for your Life Insurance payment if you died (or are diagnosed with a terminal illness) as a result of an Accident or an Adventure Sport activity. But you wouldn’t receive a Life Insurance payment if you died from an Illness.

 

 Step 3. How much do you want to be insured for?

Everyone’s life and budget is different. So considering how much you want to be insured for is an important step. 

Someone with all four types of insurance will normally have a higher amount of Life Insurance cover, followed by TPD and Recovery Insurance. These insurance types are paid as lump-sums. E.g. Your loved ones could receive a $1 million Life Insurance payment if you die.  

Income Protection is a monthly cover amount. E.g. You could be insured for a monthly payment of $5,000 if you can’t work as a result of injury or illness. 

Our Life Insurance Specialists  are here to answer any of your questions. Or, use our Cover Calculator  to work out a cover amount for your life.

Step 4. If you choose Income Protection, how long do you want your Waiting and Benefit Periods? 

A Waiting Period is the length of time you have to wait after an injury or illness, before you start accruing Income Protection benefits. It could be between 2 and 104 weeks. (Shorter Waiting Periods generally cost more in premiums.)  

A Benefit Period is the maximum length of time you could receive your Income Protection payments. It could be between 1 and 5 years. (The longer your Benefit Period the higher your premium.) 

Step 5. How do you want to structure your policy?

To get the insurance plan that’s right for you, you should also consider how best to structure your policy. 

Some of the things to consider are:

Stepped vs. Level Premiums

Stepped Premiums start off costing less than level premiums but generally increase every year as you get older and/or with changes to the Consumer Price Index (CPI). 

Level Premiums stay the same (unless you update your cover or elect to have CPI change) and generally cost less than stepped premiums in the long run. 

Standalone vs. Bundled Cover 

Standalone Cover means your insurances are independent of each other. So if you make a claim on one, the others aren’t affected. 

Bundled Cover is when you bundle TPD Insurance and/or Recovery Insurance with your Life Insurance. It generally costs less than Standalone Cover, but if you make a claim on, for example, your Recovery Insurance, the level of cover of your remaining insurance types is reduced by the same amount. Find out more  

Step 6. Enjoy This Australian Life

The most important question to ask yourself is, how will life insurance help you protect those you love or assist your return to wellness, so you can continue to make the most of This Australian Life?

Need help deciding which life insurance is right for you?

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