How life insurance works

Life cover

This type of insurance is also sometimes called death cover. It can cover your family financially in the event of your death, and can pay an early benefit to cover costs if you are diagnosed with a terminal illness.

Customers can select the amount they want to be insured for up to a maximum level, depending on their living costs and expenses such as mortgages and school fees.

Income protection (IP) insurance

IP cover pays a regular benefit that replaces some of your income if you are temporarily unable to work because of sickness or injury.

You can structure this type of insurance in different ways depending on your needs and budget, including shorter or longer waiting periods before your IP benefit is paid, and different lengths of time you want the benefit to be paid.

Total permanent disability (TPD) cover

TPD insurance pays a lump sum if you become permanently disabled as a result of sickness or injury, and are unable to work. As well as providing financial support for you and your family, it can also pay for expenses that health insurance may not cover, such as home modifications.

Trauma insurance

Trauma cover pays a lump sum in the event of a serious illness or life-threatening condition to help in financing your recovery. The payment is commonly used to cover expenses associated with the specific medical event or trauma, such as medical or surgical bills, treatment costs or home alterations.

Business expense cover

This type of insurance covers expenses for small business owners if they become ill and unable to work.

The amount of premiums you pay for your life insurance will depend on various factors, such as the level of cover you take out, how old you are, your gender and whether you smoke.

You can find out more in your insurer’s product disclosure statement (PDS), which will be given to you before you take out cover. The PDS would contain information about what your insurance covers, the application process, premium costs and the process for making a claim.

Finding the right level and type of cover for you will depend on your budget and individual circumstances. It’s a good idea to seek out a professional financial adviser to have these discussions.

You should also consider what life insurance you have in your superannuation fund. While every super fund member generally has life insurance, this often only covers part of your insurance needs.

When considering your life insurance needs, you may want to look at the level of debt you have, your stage in life, whether you have people who depend on you financially and what they would need to maintain their lifestyle if something were to happen to you.

Premiums are a regular payment to cover the cost of your insurance policy. There are typically two payment structures you can use to pay for life insurance products.

Stepped premiums

Level premiums