Life cover

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 dependents, 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.

If you need help deciding if you need life cover, and how much, speak to us.

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.

Life cover premiums

You can generally choose to pay for life cover with either:

• variable age-stepped premiums (previously known as ‘stepped premiums’) — are based on your age and recalculated at each policy renewal. Generally, this means that the cost of your cover will increase as you get older because there is a higher chance of making a claim as you age.
• variable premiums (previously known as ‘level premiums’)— charge a higher premium at the start of the policy, but changes to the cost aren’t based on your age, so increases generally happen more slowly over time.

Your choice of variable age-stepped or variable premiums has an impact on how much your premiums will cost now and in the future.

Regardless of which way you choose to pay for your cover, premiums are not guaranteed and may change annually. Speak to your insurer or read the PDS for more information.

Compare life cover

Once you know how much life cover you need, shop around and compare:

• benefits and policy features
• exclusions
• 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).

What you need to tell your insurer

An insurer will ask you questions when you apply for or change your insurance. These questions may be about your:

• age
• job
• 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 or narrower policy definitions.

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 or incomplete answers could lead an insurer to cancel or vary your cover, or decline a claim you make.

Making a life cover claim

If someone close to you dies and you need to make a claim, or if you need to make a terminal illness claim, see how to make a life insurance claim.

Source:
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/how-life-insurance-works/life-cover
Important note: This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.  Past performance is not a reliable guide to future returns.
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