Tuesday, 24 May 2022

How does life insurance work in Australia? And What does life insurance cover?


Compare life insurance and save

Life insurance is about securing your family's financial situation in the absolute worst case scenario. There's no way to sugarcoat the impact your death will have on your loved ones, so the best course of action is to be prepared with life insurance. You'll want to find a balance between adequate cover and a reasonable premium, and Mozo is here to help you research and organise the ideal coverage level. Here you can compare life insurance policies and investigate features, discounts and other important information.

Life insurance – why it's important

Taking out a life insurance policy is about ensuring your dependents and loved ones could meet their cost of living if you were no longer around to support them.

life insurance
life insurance

There are a range of life insurance providers in Australia and to help to narrow down your choice before you get a quote, you can use our table above to compare your options. But if you need a little more information to help you better understand some of the policy features and benefits before you get started, check out some frequently asked life insurance questions below.

How does life insurance work in Australia?

The way life insurance works in Australia is, at the time that someone passes away, insurance providers pay out a lump sum to beneficiaries that are nominated by the insured person. In most cases, beneficiaries are immediate family members, and different insurance providers have varying limitations of how many people you can nominate on a single policy.

Some insurance companies also pay out people who have been diagnosed as terminally ill, so that they can cover any medical costs and get their financial situation in order.

What does life insurance cover?

The type of life insurance you’re seeking will determine what is covered under your policy. Here are the different types you can take out: Life cover: This cover pays out your beneficiaries you’ve nominated on your policy a lump sum when you die.

Total and permanent disability cover: This covers rehabilitation and living costs in the case that you are totally and permanently disabled. Commonly, TPD is sold with life cover.

Trauma cover: If you’ve been diagnosed with a critical illness or disease that has a significant impact on your life, you’ll receive funds from to help support your financial needs.

Income protection cover: This type of cover will provide you with steady payments In the case that you are unable to work due to serious sickness or injury, in replacement of your income.

Accidental death: These sort of policies cover you if you die due to an accident, however there tend to be a bunch of exclusions like risky behaviour or drugs and alcohol

When should I buy life insurance?

The million dollar question: when do I actually need to take out a life insurance policy? There are a few things to consider that can help you pinpoint the right time to start looking seriously at life insurance: Life insurance premiums generally increase the older you are, so it’s a good idea to take out the policy when you're healthy, before you have any known pre-existing medical conditions that could affect your likelihood to get cover.

• It's a good idea to take out life insurance as soon as you have major financial commitments like a home loan or you have dependents that rely on your income. So once you start a family, life insurance is a great next step.

• The important - and tricky - thing is that you need to start thinking about life insurance before you need it. Don’t wait for disaster to strike before finding the right policy for you, because that’s exactly the kind of situation your life insurance is designed to protect you from.

How do I pay for life insurance?

The person who holds the life insurance policy pays premiums to their insurance providers, usually on a monthly or annual basis. This can be either in the form of stepped premiums, which means that every year the amount you pay increases because you are getting older (and generally your premiums are more costly the older you are) or level premiums.

Level premiums mean you’ll pay the same amount while your insurance policy is active. The premium cost depends on how old you were when you first took out your policy. In some cases you can pay level premiums up until a certain age and then you’ll need to pay stepped premiums thereafter.

Is it worth paying for life insurance?

As we always reiterate, this question really comes down to who you are and your personal situation.

For example, it may be worth considering life insurance if you're starting a family or have taken on debt like a home loan or business loan with a loved one or partner. Alternatively, if you're a young single person with no dependants, debt or major financial commitments, you may not need life insurance right now and so the premium may not be worth the cover.

Before you consider signing up with any life insurance provider, be sure to take stock of your finances and properly investigate the cost of life insurance and the options available to you.