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Term Life Insurance Explained
What is term life insurance in Australia?
Understanding the different types of life insurance is an important step in determining which product is right for you. Term life insurance - also known as life insurance or life cover - pays a lump sum benefit to your loved ones in case of your death or terminal illness. It can be a good way of ensuring your family remains comfortable and taken care of even if you are no longer around, and can also help to cover money owed or funeral expenses.
Put simply, term life insurance means it will expire after a certain number of years. It can be adjusted to suit your circumstances as you travel through life – for example, if you go through a major life change like having children, you may wish to increase your cover. Once the term expires, you can choose to renew your policy and consider changing your level of cover to better suit your situation.
What is the difference between whole life insurance and term life insurance?
While term life insurance is purchased for a fixed period, whole life insurance will cover you until the day you die, as long as you are still paying premiums.
Whole life insurance is often more popular in countries without a mature superannuation system since it allows for savings as well as cover.
Usually, whole life insurance will come with fixed premiums, and a guaranteed minimum pay-out value or ‘death benefit’. Whole life insurance policies also accrue something typically called a ‘cash value’. This is generated when part of the premium is deposited into a savings account, which the insurer invests at a minimum interest rate. In some cases, policyholders can withdraw from this cash value while they are still alive. They can also choose to end the policy while they are still alive, foregoing the death benefit in favour of receiving the cash value. It is important to note that there may be fees associated with doing this.
Whole Life Insurance
How much does term life insurance cost?
Term policies offer different types of premiums:
Stepped Premiums – these increase slightly year on year throughout the life of your term policy.
Level Premiums – these might start off a little more expensive at the beginning of your policy but remain the same throughout the term.
Premiums on your term policy are typically calculated at the moment you apply, and life insurance premiums will tend to be higher the older you are. Your age when you purchase your cover may influence whether you prefer to select stepped or level premiums.
What to consider when taking out Term Life Insurance
The first consideration is how long the term should be – consider important dates and milestones in your and your family’s life where your death would leave the family in difficulty. For example, what is the length of your mortgage, how old are any children you have and what are their needs moving forward? Some people will choose to take out certain types of life insurance, for example, income protection insurance, on a term basis to cover the years they are expecting to work, or the years they will be repaying their home loan, for example.
You will also need to consider how much cover you need. There are a number of different types of life insurance, including:
- Total and permanent disability cover
- Trauma cover
- Income protection insurance
- Life insurance in case of death
Depending on your family circumstances, age and health, one or more of these types of insurance may be required or preferable.
When making your decision, remember to consider whether stepped or level premiums would be more suitable, and remember to factor the need for renewals into your decision making.
How to buy life cover
Before purchasing life cover, it’s important to research your options and consider your own circumstances. The best policy is the one that is going to suit you and your family, and that will give you peace of mind as you live your life.
AAMI Life Insurance products, other than in some circumstances the Redundancy Benefit, is provided by TAL Life Limited ABN 70 050 109 450 AFSL 237848 (TAL Life) which is part of the TAL Dai-ichi Life Australia Pty Limited ABN 97 150 070 483 group of companies (TAL). TAL is not part of the Suncorp Group. TAL uses the AAMI brand under licence from the Suncorp Group. Any advice on this page in connection with the Life products is general in nature and is provided by Platform Ventures Pty Ltd ABN 35 626 745 177 AFS Representative Number 001266101 (PV). PV is part of the Suncorp Group and an authorised representative of TAL Direct Pty Limited ABN 39 084 666 017 AFSL 243260 (TAL Direct). General advice does not take into account your individual needs, objectives or financial situation. Before you decide to buy or to continue to hold a Life Products you must read the relevant Product Disclosure Statement. The Target Market Determination (TMD) for the product is available on our website.