Life Insurance Explained

By AAMI 08 March 2022

How does life insurance work in Australia?

Understanding the way that life insurance works in Australia is an important step in helping you work out what kind of cover is right for you. Life insurance - also known as term life insurance, or life cover - pays a lump sum benefit to your loved ones in case of your death or terminal illness. It can give you peace of mind knowing that your family can remain financially taken care of, even if you are no longer around.

Your life insurance benefit is paid out as a lump sum amount. The benefit can be used to pay household expenses, help repay money owed such as a mortgage, or be put towards funeral expenses.

Your life insurance policy 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 or you take out a mortgage on a home, you may wish to increase your cover. AAMI Comprehensive Life Cover expires on the policy anniversary following the life insured’s 99th birthday.

How much does life insurance cost?

Life insurance policies offer two different types of premiums:

Stepped Premiums – these increase year-on-year throughout the life of your term policy, in line with your age.

Level Premiums – these are calculated based upon the age you were when you first took out your policy – meaning that level premiums won’t increase each year just because you are getting older. However, level premiums can still increase for other reasons, including for example, if your yearly benefit amount goes up due to indexation, or if we increase our premium rates.

Premiums on your life insurance policy are typically calculated at the moment you apply, and life insurance premiums 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.

Calculate your estimated life insurance coverage using the Life Insurance Calculator.

Top things to consider when taking out life insurance

When taking out life insurance, there are several important factors to consider, including:

Your Coverage Needs: determine how much coverage you need based on your financial obligations and goals. Consider things like your outstanding debts, living expenses, and future plans.
Premiums: consider how much you can afford to pay in premiums each month. Keep in mind that the cost of premiums can vary depending on the policy type, coverage amount, and your age and health.
Policy Terms: read the policy terms carefully to understand the coverage, exclusions, and limitations. Make sure you understand the details of the policy before you to take out the policy.
Health and Lifestyle: your health and lifestyle can impact the cost of premiums and the availability of coverage. Be prepared to provide information about your medical history, current health status, lifestyle and any risky activities you participate in.
Beneficiary Designations: choose your beneficiaries carefully. Make sure the beneficiary designation reflects your current wishes and is consistent with your estate planning goals.

Questions to ask your Life Insurance provider when taking out a policy

What type of coverage options are available, and which is best suited for my needs?

This question helps you understand the different types of life insurance policies offered by the insurer and the benefits and limitations of each type of coverage.

How much coverage can I get for my premium payment?

Understand the amount of coverage you can get for the premium you are willing to pay. This will give you an idea of how much protection you can afford for your family.

What is the process for lodging a claim?

It is crucial to have a clear understanding of this procedure to ensure a smooth and stress-free experience for you or your beneficiaries in the event a claim is necessary.

Are there any exclusions or limitations in the policy?

This question helps you understand the conditions under which a claim will not be paid by the insurer. It is important to know the exclusions so you can make an informed decision about your coverage.

Are there any discounts or promotions available for purchasing life insurance?

Inquire about any discounts or promotions available to you, so you can maximize your savings and get the most coverage for your premium payment.

Are there any fees associated with the policy, such as administration fees or early cancellation fees?

Make sure to understand the full cost of the policy, so you can make a smart decision about your coverage and avoid any extra hidden costs.

How to buy life insurance

Before purchasing life insurance 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.

To discuss life insurance policies, take a look at AAMI Life Insurance, get a quick quote, or contact us today on 1300 407 322.