How Does Life Insurance Work in Australia?


Understanding life insurance as a client and financial adviser is paramount.

Life insurance provides a lump sum payout in the event of death or terminal illness, helping cover debt and provide for loved ones.

Life insurance policies come in two varieties, term and whole policies. Both options offer various advantages.

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Life insurance premiums will depend on multiple factors, including age, gender, lifestyle choices (such as whether or not you smoke), and the level of coverage you need. Your premium can be paid monthly, annually, or lump sum.

Life insurance provides financial security to your loved ones after your death, helping pay debts off, cover ongoing living costs and sell the family home without financial burdens being placed upon them by this unexpected event. In addition, life insurance policies can replace lost salary through disability benefits or unemployment compensation policies – all while offering regular income replacement should your income suddenly decrease due to disability or unemployment.

Life insurance can be obtained in various ways, from directly with insurers and superannuation funds to guaranteed acceptance policies from certain insurers which don’t require medical exams or blood tests before being covered – although these usually come with maximum cover limits and other requirements.

Many Australians now opt for term life insurance policies, which provide a lump sum payment over a specified time (known as its “term”). Over recent years, this form of cover has become the predominant form in Australia.

Indexation is a feature of these policies that allows your sum insured to grow each year with inflation or by a set percentage; you may choose not to utilize this feature, but it’s essential to understand how your premiums may increase as you age.

Some individuals believe life insurance companies charge higher premiums to older individuals as they are statistically more likely to file claims. It’s important to remember that insurance costs depend on risk, and companies have every right to charge higher premiums based on someone with a greater chance of needing their policy.

Adjusting the payment frequency or selecting a “level premium,” which does not increase during your policy term, are two strategies you may employ to lower life insurance premiums and save money on policy costs. Consult an insurance expert when deciding which option will work best for your family and lifestyle.


Life insurance policies offer families peace of mind when someone they love dies. They provide benefits payments that alleviate financial strain, such as paying mortgages, debts, or funeral costs incurred after death. Life insurers will usually distribute these benefits as either one lump sum payment or via regular income payments designed to meet specific living expenses over a specific time frame.

Many policies also offer other features and benefits, such as terminal illness coverage or total and permanent disability (TPD) coverage as additional extras to life insurance policies; they may also be purchased separately; usually, these cost-effective additions come as add-ons.

Some policies offer guaranteed acceptance features where applicants are accepted without answering health-related questions or going through medical exams, making this option appealing to those unable to afford or secure regular life insurance due to health reasons or affordability issues. These products tend only to be offered by specialist life insurers and may cost more.

Level premium life insurance policies are another popular form of life coverage and promise not to increase over time, although their initial premium may be more costly than later premiums. Only certain direct insurers in Australia offer this kind of policy, so it is wise to research the pros and cons before opting for such coverage.

Life insurance policies come in various types, which you can learn more about by consulting ASIC’s MoneySmart website or a specialist adviser. Always read the product disclosure statement of any policy considered to ensure it fits your requirements.

Before purchasing standalone policies, it’s advisable first to determine what coverage exists within each superannuation fund policy and the total premium cost involved.


Many life insurance policies exclude certain conditions from coverage, such as drug or alcohol abuse, suicide attempts, and occupational hazards, such as drowning for fishermen or car accidents for taxi drivers. Policy exclusions will differ among insurers, so you must read your Product Disclosure Statement (PDS) thoroughly – any incorrect answers could lead an insurer to reject your application or deny a claim in the future.

Compare policy exclusions by reviewing PDS documents and customer reviews. It is also wise to observe how quickly claims are paid and compare the percentage of claims paid.

Life insurance policies are often taken out to provide your nominated beneficiaries with a lump sum upon death. However, they can also cover debt or replace income in case of disability or early retirement. Life policies can either be purchased independently or through superannuation plans.

A term life insurance policy provides fixed protection over time – usually up to $1 million – at a predetermined cost. Cover can be level or indexed; an indexed policy increases your cover annually according to CPI or another specified percentage, typically around 2%.

Permanent life or whole life insurance was once more popular in Australia but is becoming less so today. Such policies typically pay out a lump sum regardless of when someone dies, thus being more costly than other forms of life insurance coverage.

Total and permanent disability (TPD) cover is an add-on policy designed to pay out in case of a severe illness or injury that cannot be remedied. Although TPD coverage tends to be more costly than life insurance policies, certain insurers offer TPD plans.

Life insurance can be an intimidating decision and should be treated as such. Being open and truthful on your application could result in missing out on valuable payouts for loved ones left behind.


Life insurance policies offer many different reasons to people, with your decision depending on your unique circumstances and desired amount of coverage. When researching different policies, consult a qualified financial adviser for further insight.

Claiming with your insurer will likely require some essential documentation. This may include copies of medical records and debts or funeral expenses that you owe and your death certificate. In certain instances, your insurer may also request more detailed information or evidence of pre-existing conditions which existed before taking out their policy.

In most instances, your insurer will contact you directly to discuss what needs to be done to process your claim and any information they require. They should also let you know how long it should take them to assess and manage it as per the life insurance Code of Practice requirements.

If you want quick and easy access to coverage, look for a guaranteed acceptance policy. These will typically involve answering some health-related questions or taking part in a medical exam before paying an increased premium for their coverage.

Life insurance policies often include terminal illness coverage or total and permanent disability (TPD) protection as part of their offerings, providing you with an extra lump sum payment should an illness that cannot be cured be diagnosed; such coverage can provide invaluable peace of mind should something happen that cannot be reversed or treated. Term policies tend to include this coverage.

Finalize your plans by keeping this fact in mind: most life insurance policies index their coverage yearly with inflation, meaning the exact amount you are covered for will grow over time – though its exact amount might remain hidden until closer inspection of the policy.

When considering life insurance, it’s wise to conduct some preliminary research first and consult ASIC’s MoneySmart website for details of costs and inclusions. You should also speak to an adviser to ensure your policy satisfies all your unique requirements.