If you’re exploring the Australian life insurance market for the first time, this concise guide will help you quickly grasp the essentials. For personal advice on policy choices, we strongly urge you to consult a financial services professional but if you just want a quick and dirty primer that gives you the basic facts fast, read on!
Term vs. Whole Life Insurance
Before we talk about the main features and add-ons you’ll encounter when studying life insurance policies in Australia, it’s worth mentioning that in this country, term life insurance is the only type of insurance available. Whole life insurance, which includes an investment component intended to provide retirement funds, was phased out when Superannuation was made compulsory as it was no longer needed. Term life insurance, which provides coverage for a specified number of years, is offered by a number of companies.
Life Insurance Policies in Australia: Main Features and Add-Ons
Whilst not all policies are identical, the following features and additional coverage options are common to most of the better offerings in the Australian marketplace:
- Death Benefit – This is a lump sum, payable on the death of the policyholder. The cash can be paid to one or more beneficiaries, designated by you. If you’re looking for the simplest type of life insurance in Australia, choose a policy that offers a death benefit and nothing else. Such a policy will help ensure that your dependents are well provided for in the event of your passing.
- Income Protection Insurance – A valuable benefit to anyone with dependents, income protection insurance provides you with a replacement income in the event you’re no longer able to work due to serious illness or injury. This replacement income could be as much as 70% of your regular monthly salary, depending on which company you deal with and the policy you choose.
- Total and Permanent Disability Insurance – TPD insurance, as it’s more commonly referred to, pays out a lump sum in the event you’re left permanently disabled and unable to work or unlikely to ever work again. For parents of young children, it’s a comforting addition to a term life insurance policy that provides extra peace of mind. Some policies will pay out if you’re unable to pursue your current occupation whilst others will only pay out if you’re unable to work in any occupation.
- Critical Illness Insurance – Also known as trauma insurance, critical illness insurance is designed to ensure you’re not left in financial distress because of a critical illness or injury. In the event of such an occurrence, you receive a lump sum of cash to help pay for medical bills and any other expenses you need to meet during your recovery.
For many people, the death benefit is by far the most valuable component of their life insurance policy but income protection, TPD and critical illness insurance are worth considering as well. In combination, these 4 types of coverage provide a comprehensive financial safety net to catch Australians whenever times are tough.