What are the different types of life insurance?
The most common type of life insurance available in Australia is Term Life Insurance, which is designed to provide your family and loved ones with financial support in the event of your death.
Term life insurance is a cost-effective, easily accessible form of life insurance that suits most people and situations, although some other types of insurance people often consider include:
- Permanent Life Insurance (no longer available in Australia)
- Variable Life Insurance (no longer available in Australia)
- Whole of Life Insurance (no longer available in Australia)
- Critical Illness Insurance
- Child Life Insurance
As everyone has different circumstances and budgets, it’s important to select a life insurance product that meets your needs. With so many insurance providers out there, the features, benefits and costs of different products can vary widely. It’s worthwhile taking the time to compare different life insurance offerings to ensure that you select:
- An insurance provider you know and trust.
- A level of cover that will meet your needs.
- A product that includes the features and benefits you need, rather than simply being the cheapest life insurance product available.
If you don’t choose wisely, you or your loved ones may find that your policy doesn’t deliver what you were expecting at claim time.
Once you’re satisfied that you’ve found a good product, you’re with the right insurer and you have a realistic level of cover in mind, it’s usually a simple task to get a life insurance quote online. This will give you a snapshot of how much you’ll need to pay for your chosen level of cover, and also allow you to compare premiums with other insurers.
If you’re looking for relevant and cost-effective Term Life Insurance, AAMI Life Insurance* can help. Your first step is an online quote.
Who needs life insurance?
It’s an unfortunate fact of life that we can’t always protect ourselves and our loved ones from risk and misfortune. That’s why life insurance is valuable throughout life, from starting out in your career, to having a family, and right through to retirement.
While life insurance can benefit most people, it’s considered essential if you have major financial commitments such as a mortgage or personal debts, or financial dependants such as a partner and children. It helps by providing the money your family needs to maintain their lifestyle into the future.
Life insurance can have an important role to play during every stage of life.
Single people without debts or dependants often have no need for life insurance because no one depends on them financially. However, there are exceptions. For instance, some single people may provide financial support for aging parents or siblings. Or, if you’ve bought a house or investment property, you may wish to pass it on, debt-free, to family members.
Another good reason to consider life insurance when you’re single, particularly if you’re young and healthy, is that you’re more likely to be accepted at the cheapest premium rates. By waiting until you’re older, any health complications can make it more difficult and expensive to take out life insurance.
Couples without children
Couples without children may not have the responsibility of child care, school fees and all those extra expenses that go with raising a family, but they’re not without financial obligations.
Consider how much you rely on your partner’s income to maintain your standard of living. As a surviving spouse, would you be able to continue with your mortgage or rent payments? Would you have the financial capacity to take on your combined credit card debts and the car loan?
If your answer is ‘no’, then you may need to review your life insurance needs.
Life insurance is essential once you have a family, and perhaps even more so when you rely on two incomes to make ends meet. In that scenario, the loss of either partner could seriously jeopardise your family’s lifestyle and future.
Everything you’ve worked so hard to achieve – as well as your plans for the future – could be at risk without adequate protection.
Single parents often provide the only income, and may be the only carer, for their children. That’s a lot of responsibility for one person, so taking out adequate life insurance should be high on your priority list. It could make all the difference in safeguarding your children’s financial future.
Stay-at-home parents play a crucial role in a family’s financial position. After all, running a household and raising children are very expensive tasks if they need to be outsourced. Consider the costs of employing a nanny to mind young children or get the kids to and from school. And who would take over responsibility for cleaning the house and cooking meals?
Life insurance for the stay-at-home parent may allow the surviving partner to pay off debts, supplement their income and perhaps change their work pattern so they can spend more time with the children.
Parents of grown children
People often place less importance on the value of life insurance once their children have grown up and left home, but it can still be useful if the mortgage is yet to be paid off or you don’t have a lot of superannuation savings.
You may think social security will come to the rescue, but if you died today would you really want your partner to live on such a basic income for potentially another 10, 20 or even 30 years or more?
Life insurance can become expensive once you’re over 55, but it may still be worth the cost. As with Couples without children, the proceeds of a claim can be used by the surviving partner to pay off credit cards and other debts, pay bills and living expenses during a difficult time, and cover funeral expenses.
Life insurance can also be an attractive option for retirees who haven’t accumulated a lot of assets but would like to leave a legacy for their children and grandchildren.
Small business owners
If you’re in a business partnership, you and your partners should consider insuring each other’s lives. A suitable life insurance policy can provide the funds you need to buy the business interests of a deceased partner, without having to dig into your own pockets or take on additional debt.
This level of protection should ensure that the business can continue to operate if a partner dies or becomes terminally ill.
How much cover do I need?
How much life insurance you’ll need depends largely on your personal situation, but it’s important to base your decision on the most realistic amount of cover you can afford, rather than simply the cheapest premium.
As a guide, many insurance experts recommend that Singles, Couples and Older Parents who don’t have dependent children should have enough life insurance to replace five to seven years of their pre-tax earnings. Parents (including Single Parents) with financially dependent children are more likely to need an amount of life insurance equal to 10 times their income.
In reality, the right amount of cover for you should reflect your family’s immediate and ongoing financial needs. For example, most families would need sufficient funds to:
- repay the mortgage and other outstanding debts
- pay for immediate expenses like the cost of the funeral expenses, which in many cases will easily exceed $7,000
- pay for everyday living expenses like rent, bills, groceries and children’s education
- maintain their standard of living over the long term and provide for major future purchases.
Once you’ve tallied up your expected financial commitments, think about any existing resources that your family members could draw upon if you’re no longer around, such as other earnings, savings and investments, and current life insurance policies.
The difference between what you need and what you can draw upon will give you a good idea of how much additional life insurance you need. You can use our life insurance calculator to help calculate this figure.
Your next step is to request a life insurance quote online, which will give you an understanding of the costs involved in securing your family’s future.
Once you have life insurance in place, it’s important to review your cover regularly to ensure it keeps pace with your changing circumstances. While most companies will automatically increase your sum insured each year to help keep it in line with inflation, this may not be enough if your circumstances change substantially.
Can I afford life insurance?
The real question is, can you afford not to have life insurance?
If you were to die now, could your family continue to live in the family home, maintain their lifestyle and achieve their financial goals? Ultimately, not having life insurance could cost you and your family more than you think.
Fortunately, most people are surprised to learn that life insurance is actually cheaper than they think. Adequate cover can start from as little as the cost of a takeaway coffee each week.
And the benefits of life insurance far outweigh the cost, as you or your family can use the proceeds of an insurance payout to:
- Pay off the mortgage and other debts
- Meet ongoing household expenses
- Fund medical treatment or rehabilitation costs
- Pay for school and uni fees
- Pay for extra child care or home services
- Cover the cost of funeral expenses.
In the unfortunate event that a claim needs to be made on your policy, you’ll probably think taking out life insurance was the best financial decision you’ve ever made.
If cost is an issue for you, it’s good to know that heightened competition means there is now a range of cheap life insurance options, many of which you can apply for and purchase online.
The best place to start is with an online life insurance quote. This is usually a simple process that involves entering a few personal details, such as your age, gender, occupation and smoking status, and then submitting your request to the insurer.
With little fuss, you’ll soon find a level of low cost life insurance that will meet your needs and protect your family’s future.
How can I reduce the cost of life insurance?
The cost (purchase price) of life insurance, known as the ‘premium’, can depend on a range of factors including your gender, age and smoking status. Generally, applicants who are older or who smoke are likely to pay higher life insurance premiums.
The best way to reduce the cost of life insurance over the long term is to purchase life insurance when you’re young and healthy. This will give you a better chance of being accepted by the insurer at ‘standard’ premium rates, which are generally the cheapest rates on offer.
Once you have life insurance, and providing you continue to pay your premiums, the insurer is then obliged to continue your cover even if your health deteriorates.
If you’re already paying higher-than-standard life insurance rates, some possible ways to reduce your premiums include:
- If you’re overweight, reduce and maintain your weight within the normal range for your height.
- Quit smoking, as this can significantly increase the premium you’ll pay. Life insurance companies will often allow smokers to re-apply for cover at standard rates once they’ve stopped smoking for a period of at least 12 months.
- Look for benefits such as a Family Discount, which may entitle you to a reduced premium if a family member purchases the same life insurance product.
- Review your life insurance policy from time to time, as you may find there are new products available offering the same features and benefits but at a lower cost.
An additional benefit of reviewing your life insurance is that changes to your lifestyle may have made you less of a ‘risk’ to the insurer. For example, if you no longer participate in extreme sports such as mountaineering, or no longer work in a job that is deemed dangerous, such as underground mining, then you may now qualify for standard, or at least cheaper, life insurance rates.
If you’re unable to pay your premiums due to financial hardship, you should contact your insurer as they may be able to pause or defer your premiums for a period of time. For example, AAMI Life Insurance* offers a Premium Pause Benefit which may allow you to pause premiums for up to three months over the life of the policy.
Alternatively, AAMI Life Insurance’s Premium Freeze Benefit may allow you to freeze the cost of your premiums by accepting an annual reduction in your sum insured as you get older.
How will my health affect my cover?
Life insurance is tailored specifically to each applicant. For an insurer to accept your application for cover, they must be satisfied that your health and lifestyle fit within acceptable boundaries.
As such, an insurer will generally take into account a range of personal and lifestyle attributes when considering your application, including your age, height, weight, medical history, occupation, family health history and smoking status.
If you have pre-existing health issues when you apply for cover, you may need to pay a higher premium rate than normal (known as a ‘premium loading’). The life insurance company may need to charge this loading in order to cover the additional risk.
In addition, some lifestyle choices may affect your life insurance cover, including:
- High risk occupations such as working in the oil or gas, transport or fishing industries.
- Engaging in hazardous sports such as parachuting, mountaineering and motor sports.
However, life insurance is not limited to healthy, risk-averse people. Even those who have survived a serious illness, such as cancer or a heart attack, may still be eligible for life insurance cover.
Before accepting cover, the insurer will usually consider the type of illness or disease and its stage of development. For example, some cancers are considered more aggressive – or more treatable – than others, so an insurer would typically request a full medical report and examination to determine how far the cancer has progressed and whether it’s likely to return.
Often, the insurance company will want to wait at least a couple of years after the applicant has been given the ‘all clear’ before accepting the policy, and it may attract a premium loading due to the higher risk.
Will I need a medical test?
Insurers are liable for substantial payouts in the event of a claim, so they need to make sure that every life insurance applicant is an ‘acceptable’ risk. Not only does this reduce unnecessary payouts, but it keeps premiums down for every policy holder.
The cheapest life insurance goes to those who are in good health, whereas people who smoke, have a heart complaint or are obese may pay substantially higher premiums.
In some cases, if an applicant’s health or lifestyle is considered to be outside their normal criteria, an insurer may require a medical test to determine whether they can accept the risk. For example, some insurers may require you to undergo medical testing if you have either:
- pre-existing health issues; or
- a family history of poor health.
If, from the results of the medical test, the insurer deems that you present a higher-than-normal risk of dying or being diagnosed with a terminal illness, they may either decline your application, offer a policy with additional conditions and/ or charge higher premium rates.
However, if you’re worried that your application may be declined or only accepted subject to conditions, don’t be tempted to hide or omit relevant information. This could result in non-payment of an eventual claim.
Do I need life insurance outside super?
Most super funds offer at least a basic level of life insurance, and often income protection and Total Permanent Disability (TPD) insurance to protect members and their families from the financial hardship of death or a terminal illness.
Holding your life insurance within super – rather than in a stand-alone life insurance policy – can have its benefits, including:
- cheaper, more tax-effective premiums; and
- automatic acceptance, without the need for medical questionnaires or examinations.
The cheaper premiums mean that fund members can potentially have a higher sum insured than they would have outside super, for the same price, or maintain the same sum insured but at a reduced cost.
However, structuring life insurance within super can also have its drawbacks. The most serious of these is the danger of insufficient protection, with members often underestimating how much life insurance cover they actually need.
Many funds will have only a basic amount of life insurance as their default offering (eg. $100,000 or $200,000) or a fixed multiple of salary (eg. 5 x salary). This cover does not necessarily reflect each member’s personal circumstances, such as the number of financial dependants they have, their family situation or their level of debt. So in reality, many members need considerably more cover to ensure their family will be financially secure.
To assist you in understanding your life insurance needs enter your current financial details into our life insurance calculator.
This can help identify any gaps in your overall insurance protection and, if necessary, you can either increase the level of insurance cover within your super fund or take out a separate term life insurance policy.
How do I cancel my AAMI Life Insurance policy?
Our customer care team can assist you with cancelling your policy or updating your details. Please call us on 13 22 44.
Life is full of changes
At AAMI we believe in the importance of helping to provide you and your family with financial reassurance and security when you need it most. If the decision to cancel your cover is the result of a change in your lifestyle or financial situation, it’s worth knowing we’re looking out for you.
We have a range of financial solutions designed to help you maintain your cover through the good times and the bad.
To find out how we can help, please call the customer care team on 13 22 44.
Did you know?
- Research has found that the average age at which Australians are diagnosed with life-threatening diseases like cancer, heart disease or stroke is 49^. Yet on average, Australians cancel their life insurance cover at age 44^ - just before they’re most likely to need it.
- There was over $5 billion in life insurance claims paid out in 2013 to 85,000 families.
- We pay an average of $1.5M in claims every day.
AAMI allows you to cancel your policy at any time. So long as you don’t need to make a claim, we will refund you the unexpired portion of the premium, less our cancellation fee and less any non-refundable government charges if the refund is more than $10.
We will not charge a cancellation fee if you are transferring cover to another insurance policy with us or exercising your cooling off rights.
^ research conducted in 2013 by Suncorp Life and Superannuation Limited (SLSL)
I’m a NZ Citizen, can I apply for this insurance policy?
Yes, Australian and New Zealand Citizens and permanent residents, residing in Australia at the time of applying for the insurance policy can apply.
I’m a NZ Citizen and have an insurance policy with you, will I be paid if I need to claim?
Yes, as long as you meet all the requirements of your policy you’ll be paid your benefit.
Is AAMI a signatory to the life insurance industry's Code of Practice?
Yes. It’s important that you get the highest standards of service in all your dealings with us. That’s why we have adopted the Life Insurance Code of Practice. It’s the life insurance industry’s commitment to mandatory customer service standards and it’s designed to protect you, our customer. Find out more.
Life Insurance Glossary of Terms
We know that life insurance can sometimes seem complicated, particularly when you come across words and terms that you’ve never seen before. We’ve developed this reference tool to help you understand some of the insurance terms you might encounter during your search for life insurance.
The purpose of life insurance is to provide financial support for your loved ones in the event of your death. Typically, the recipients of a life insurance claim (known as beneficiaries) are your partner and/or children, but could also be other family members, business partners, people who are financially dependent upon you or your estate. With an AAMI Life Insurance* policy, you can nominate up to 5 beneficiaries.
Life insurance policies generally allow you to nominate who you want as a beneficiary, either within the application form or via a separate Nomination of Beneficiaries form.
Nominating a beneficiary will clarify who is the rightful recipient of your death benefit (or terminal illness benefit or funeral advance) and is therefore likely to speed up the claims process.
Many life insurance policies allow policy holders to nominate multiple beneficiaries (such as your partner and children) to receive the proceeds of your policy. It’s important to update your nominated beneficiaries whenever your personal circumstances change substantially, such as following a separation or divorce, to ensure your death benefit doesn’t end up in the wrong hands.
Claim time is when the value of life insurance cover truly becomes evident, and that’s because the insured person has died or been diagnosed with a terminal illness.
It’s at this point where the policy holder or beneficiaries will request that the insurer pays a benefit under a policy.
It’s likely to be an emotionally difficult time, and in some cases the beneficiaries may be in urgent need of the money. To ensure the process runs as smoothly as possible, the claimants should quickly gather and provide all the relevant information to their insurer.
This information is likely to vary depending on the insurer and nature of the claim, but in the case of a life insurance claim it’s likely to include the relevant claims form and an official death certificate (or medical reports in the case of terminal illness).
Once your insurer has received the required information, they will advise you of the next steps and keep you informed as it progresses. Some policies may include a funeral advance, which can be paid out almost immediately to cover the costs of a funeral.
Cooling off period
Buying life insurance cover is an important financial decision, and not one that should be taken lightly. With all the different products available, and a multitude of insurers, it makes sense to do a little research to ensure the life insurance policy you select is relevant and cost-effective. This will give you the confidence and peace of mind of knowing that your policy will provide the protection you need, when you need it.
However, if you do purchase a life insurance policy and then have doubts that it’s the right one for you – or perhaps you find more appropriate cover elsewhere – you’ll be pleased to know that, if you act promptly, changing your mind will not cost you anything.
This means you have a minimum of 14 days from the policy commencement date to check that the insurance meets your needs (this applies specifically to life insurance policies, other types of insurance may vary).
If you want to cancel your policy within the cooling off period, and provided you haven’t made a claim, you simply need to advise your insurer of your intention to cancel and they will issue a full refund of any premiums paid.
Funerals can be expensive, often costing thousands of dollars, and sometimes it’s difficult for family members to access the funds they need at what is already a stressful time.
Some insurers make this task easier by including a special funeral advancement benefit within their life insurance policies. This benefit pays a set amount to cover funeral expenses on the death of the insured person.
For example, AAMI Life Insurance* will advance $10,000 of your sum insured on your death, to help with the costs of your funeral and other expenses. The Funeral Advancement Benefit will usually be paid to your nominated beneficiary (or your estate) within 24 hours of receiving your death certificate and completed claim form.
Because the Funeral Advancement Benefit comes out of your sum assured, the amount subsequently paid out as your death benefit will reduce by $10,000.
AAMI Life Insurance only offers single life policies, which means the policy holder must also be the insured person.
The price you’ll pay for life insurance is known as a premium. Life insurance companies maintain a schedule of premium rates, with each premium paying for the insurance cover, government fees and charges, and the insurer’s administration costs.
The premium you’ll pay as an individual is calculated as your applicable premium rate (based on your age, gender and smoking status) multiplied by your sum insured. Generally, applicants who are older or who smoke are likely to pay higher premium rates.
If you have pre-existing health issues when you apply for cover, you may be required to pay a premium loading.
Most insurers allow you to choose whether to pay your premium monthly or annually, and premium rates can vary between insurers.
Some insurers offer premium discounts to certain policy holders. For example, AAMI Life Insurance offer a 30% premium discount for sums insured of $500,000 or more, and a 10% premium discount to family members who both purchase an AAMI Life Insurance policy.
When processing your application for life insurance, your insurer will consider factors such as your health and occupational duties before making a decision about whether to accept your application.
If you’re in good health, your insurer may offer you a life insurance policy on standard terms, which means you’ll pay the standard premium rates for your age, gender and smoking status.
However, if you have a pre-existing medical condition then you may be offered a policy with certain conditions, such as a ‘premium loading’. This simply means you’re required to pay a higher premium, for the same level of cover, than someone on standard rates
In some cases the insurer’s underwriting team may need more information to assess your application and will arrange for medical tests or doctors’ reports before making their decision.
The sum insured (also called the ‘sum assured’) is the amount of life insurance cover your insurer will pay out, in the event of a claim, as either a death benefit or terminal illness benefit.
You can usually update this amount over time as your circumstances change, although in some cases you may need to provide additional medical evidence before the increase is accepted.
Depending on your personal and financial circumstances, you can usually apply for a sum insured of as little as $100,000, to as much as $1,000,000 or more. Then, if you die or become terminally ill during the term of your policy, your insurer will pay out your entire sum insured as a lump sum benefit to your nominated beneficiaries (or your estate if you haven’t nominated a beneficiary).
Term life insurance is so-called because it only provides cover for a certain term (unlike whole of life and other permanent policies, which provide lifelong insurance protection).
In most cases, the term lasts until the insured person reaches age 99. Therefore, once your application for life insurance is accepted, your policy will generally provide ongoing cover (on an annually renewable basis) for every year up until your 99th birthday.
However, in certain scenarios your cover will stop before the end of the term, including when:
- you cancel the policy because it’s no longer required;
- your insurer cancels your policy due to non-payment of outstanding premiums;
- you are paid a terminal illness benefit; or
- you die and a death benefit claim is made.
Once your cover has stopped for any of these reasons, the insurer will no longer consider a claim unless the event giving rise to the claim occurred before cover ceased.
Most life insurance policies will not only pay a benefit on death, but also on the diagnosis of a terminal illness. This is typically an advanced or rapidly progressing incurable illness, where in the opinion of both your attending doctors and the insurer your life expectancy is not expected to exceed 12 months, regardless of any further treatment you may receive.
Once your claim is accepted, your insurer will pay out your sum insured in full, allowing you and your beneficiaries to spend or invest these funds as you see fit. On your death, no further payment will be made.