What is life insurance ?
Life insurance cover, explained simply.
There are four main types of personal insurance, each designed to help when life doesn't go to plan. From protecting your family if you're no longer around, to supporting your income, recovery, and financial security if illness or injury strikes.
Life Cover.
Life insurance is all about giving the people you care about financial security if you're no longer around to support them. It pays a lump sum if you pass away or are diagnosed with a terminal illness. It can help pay off debts, provide for future living expenses, and give your loved one’s greater financial security when they need it most.
For example:
If you had a $500,000 mortgage and a family relying on your income, a Life Cover payout could help clear the mortgage and provide a financial buffer while your family adjusts.
TPD Cover.
TPD Insurance is all about helping protect your financial future if an illness or injury leaves you permanently disabled. It pays a lump sum if you are unlikely to ever work again, and can help replace lost income, cover ongoing living expenses, and provide financial support for rehabilitation, care, or modifications to your home.
For example:
If a serious injury meant you could no longer work, a TPD payout could help clear debts, adapt your home and provide financial support for the future.
Trauma Cover.
Trauma insurance is all about giving you financial breathing room when life takes an unexpected turn. It pays a lump sum if you're diagnosed with a critical illness such as heart attack, stroke, or cancer. It can help cover medical expenses, spend time away from work, and give you the freedom to focus on what matters most: your recovery.
For example:
If you're diagnosed with a serious illness, a Trauma payout could give you the financial freedom to focus on getting better without worrying so much about money.
Income Protection Cover.
Income Protection Insurance is all about helping you maintain your lifestyle if illness or injury stops you from working. It pays a monthly benefit to replace up to 70% of your income while you're unable to work. It can help cover everyday living expenses, keep up with financial commitments, and provide financial security while you focus on getting back to work.
For example:
If surgery meant you couldn't work for six months, Income Protection could provide a monthly payment to help cover your mortgage, rent, groceries and other regular expenses so you recover.
Waiting period.
What it is:
How long you wait after becoming unable to work before your payments begin. This can range from around 2 weeks to 2 years, depending on the policy.
Benefit period.
What it is:
How long your payments can continue while you're eligible to claim. This could be 2 years, 5 years or, with some policies, until age 65.
Life Insurance cover, inside or outside super?
Linked or standalone?
What happens if you have more than one type of cover?
If you have Life Cover alongside TPD or Trauma Cover, those policies can generally be set up as linked or standalone.
The easiest way to think about it is: one bucket or separate buckets.
Standalone cover.
Think of standalone cover as separate buckets for each benefit.
Each type of cover has its own amount of cover available.
So, if you have $500,000 of Life Cover and $200,000 of TPD Cover, you have $500,000 available under Life and a separate $200,000 available under TPD.
Standalone cover will generally cost more because you're paying for separate amounts of cover.
If you claim on one, it doesn't reduce the other.
Linked cover.
Think of linked cover as one bucket shared between multiple benefits.
Your TPD and/or Trauma Cover can be linked to your Life Cover, which will result in a lower premium than standalone cover.
If the benefit amounts are the same as, or less than your Life Cover, they can usually be linked together.
If a claim is paid, the remaining amount available under the shared bucket is reduced.
Here's a simple example:
Say you have $500,000 of Life Cover and $200,000 of TPD Cover linked to it. The $200,000 isn't extra cover on top of the $500,000 - it's part of the same $500,000.
If you make a $200,000 TPD claim, you'll receive that $200,000 and your remaining Life Cover would reduce to $300,000.
If the TPD Cover were standalone, you'd still have your full $500,000 of Life Cover after a $200,000 TPD claim.
So which option do I actually need?
You don't necessarily need every feature or option available. The amount and type of cover people choose can depend on factors such as income, debts, family commitments, savings, existing insurance, and any cover already held through super.
And this is where insurance can start to feel complicated. Different insurers use different definitions, features and rules.
You don't need to work it all out yourself. Once you've got a rough idea of how much cover you may need, we can help you understand the options, explain what they actually mean and make sense of the different ways cover can be owned and funded.