A popular way for Australians to protect the financial security of their family and loved ones is to take out a life insurance policy.
Life insurance is inexpensive when you consider the benefits it can provide, and with a wide selection of Australian insurance companies offering the cover it is easy to find a policy that suits your needs as well as your budget.
Types of Life Insurance in Australia
Over the years there have been a number of different types of life insurance available in Australia, and many of these are still available in some countries around the world.
Today, and over the last couple of decades, the most popular (and virtually only) form of life insurance in Australia has been term life insurance.
Term life insurance, which in Australia is commonly known simply as life insurance, is similar to any other form of life cover in that it pays you a lump sum amount if you die or are diagnosed with a terminal illness.
Some older types of life cover, such as ‘whole of life’ and endowment insurance, were different to today’s life insurance in that they combined insurance with a cash savings element.
You may have heard of people ‘cashing in’ or selling their life insurance policies. This was because old life insurance policies included a cash amount that would increase with bonuses for each year that you maintained the insurance.
Whilst these policies worked reasonably well, there were complications with the way life insurance agents were paid for selling the policies, and it was felt that some agents may be using the product inappropriately.
Life insurance in Australia underwent a number of changes, and as a result the dominant form of life insurance became term life insurance.
Term Life Insurance
Out of the various types of life insurance available in Australia over the years, term life insurance is probably the easiest to understand for consumers due to its straightforward structure.
A term life insurance policy will generally run until you reach 99 years of age, although this can vary slightly depending on the insurance company. Terms of 5 or 10 years are also available from some insurers, however this is less common in Australia.
The sum insured for a term life insurance policy is set when the policy is taken out and can generally be changed at any time prior to claiming, provided that your health hasn’t deteriorated to the point that the insurer cannot offer additional cover.
Whilst the sum insured does not increase due to savings, interest or bonuses, it can increase with inflation if you select that option. The life insurance premium will always be linked to the sum insured along with other factors including your age.
Your term life insurance policy will continue to cover you for as long as you keep paying the premiums, until you reach the expiry of the term, which is generally 99 years of age.
In reality, most Australians will choose not to continue their insurance well before they reach age 99 for a variety of factors. Generally by that age people will have no remaining debts and their family and loved ones will no longer be reliant on them financially.
