How does life insurance work?

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 and Permanent Disability Insurance
• Critical Illness or Trauma Insurance, and
• Income Protection Insurance.

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: 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 and Permanent Disability Insurance: To help you live a better quality of life if you become permanently disabled and can’t work again, then Total and Permanent Disability (TPD) Insurance could be for you.
• Critical Illness or Trauma Insurance: If you have a serious illness that's covered by the policy, like certain malignant cancers, then Critical Illness or Trauma Insurance helps support you while you recover.  
• Income Protection Insurance: 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 Insurance is for.  

Step 2. 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. 

Life Insurance cover, TPD and Critical Illness or Trauma Insurance are paid as lump-sums.

Income Protection Insurance is a monthly payment 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 Life Insurance Calculator to help you explore some of the considerations that go to deciding on an amount of cover. 

Step 3. If you choose Income Protection Insurance, 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 that stops you from working, before you start accruing Income Protection Insurance benefits. It could be 4, 6, 13 or 26 weeks (shorter Waiting Periods generally cost more in premiums.)  

A Benefit Period is the maximum length of time you could receive your Income Protection Insurance payments. (The longer your Benefit Period the higher your premium.) 

Step 4. 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:

Variable Age-Stepped Premiums vs. Variable Premiums

• Variable Age-Stepped Premiums

Variable Age-Stepped Premiums are calculated based on your age as at each Policy anniversary and the length of time you have had your Policy.

• Variable Age-Stepped Premiums generally increase as you age. The increases will generally be more significant as you get older.
• Variable Age-Stepped Premiums can also increase with the length of time you have had your Policy.

This means your premium will generally increase at each Policy anniversary.

There are a range of reasons why Variable Age-Stepped Premiums may increase—refer to Sections 1.3.2 and 1.3.3 in the PDS for details.

• Variable Premiums

Variable Premiums are based on your age at the Plan start date.

• Each additional amount of cover will be priced based on your age at the date of increase. This will generally have a higher premium rate than the original cover.
• Variable Premiums are not fixed. There are a range of reasons why they may increase—refer to Sections 1.3.2 and 1.3.3 in the PDS for details.
• Variable premiums end at the Policy Anniversary before age 65 or 70 and will change to the corresponding Variable Age-Stepped premiums from that time until your Policy expiry.

Refer to the PDS for details.

Standalone vs. Bundled Cover 

There are a number of different ownership options available depending on the Plan you choose. The different types of ownership determine how the premiums are funded and may have different tax implications in respect of the premiums and benefits paid. 
The Plans structures available are: 

• Standalone: A claim paid under a Standalone Plan will not reduce the Benefit Amount of another Standalone Plan.
• Attached/Attaching: When a Plan is Attached to another Plan, a claim paid under a Plan will reduce the Benefit Amount on all other Plans that it is Attached to. All Attached Plans have the same Policy Owner(s) and are issued under one Policy. 

Step 5. 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?