Life insurance is a crucial component of financial planning, providing peace of mind and financial security for you and your loved ones. In Australia, there are three main types of life insurance: Term Life Insurance, Whole of Life Insurance, and Life Insurance via Superannuation.

Each type has its unique features, benefits, and considerations. In this blog, we will explore these three types in detail to help you make an informed decision about which one is best suited for your needs.

Term Life Insurance

What is Term Life Insurance?

Term life insurance is the most common type of life insurance available in Australia today. It provides coverage for a specified period, known as the “term.” If the policyholder passes away during this term, a lump sum benefit is paid to the beneficiaries. This type of insurance is designed to provide financial protection for your loved ones in the event of your untimely death.

Key Features of Term Life Insurance

Coverage Period:

Term life insurance covers you for a set number of years or until you reach a certain age, whichever comes first. Common terms range from 5 to 15 years.

Premiums:

Premiums are generally level (fixed) during the term of the life cover.

Flexibility:

Many term life insurance policies offer the flexibility to adjust your coverage amount as your needs change. You can increase or decrease your coverage, subject to underwriting requirements.

Renewability:

Some term life policies are renewable, allowing you to extend your coverage without undergoing a new medical examination, although premiums may increase.

Benefits of Term Life Insurance

Affordability:

Term life insurance is more expensive initially than a policy with a ‘stepped’ premium under a ‘whole of life’ policy.

Simplicity:

The straightforward nature of term life insurance makes it easy to understand and manage.

Financial Security:

Provides a lump sum benefit to your beneficiaries, helping them cover expenses such as mortgage payments, education costs, and daily living expenses.

Considerations for Term Life Insurance:

No Cash Value:

Term life insurance does not accumulate cash value. If you outlive the term, the policy expires without any payout.

Fixed Increases:

Term life is offered under a ‘fixed’ premium – although there may still be some increases to the premiums whilst the policy is in place.

Whole of Life Insurance

What is Whole of Life Insurance?

Whole of life insurance, also known as permanent life insurance, provides coverage for the entire lifetime of the policyholder. Unlike term life insurance, whole of life insurance includes an investment component, which allows the policy to build cash value over time. However, it’s important to note that whole of life insurance is no longer available for new policies in Australia. It was phased out in the early 1990s, but existing policies remain in force.

Key Features of Whole of Life Insurance

Lifetime Coverage:

Whole of life insurance covers you for your entire life, as long as premiums are paid.

Guaranteed Death Benefit:

A lump sum benefit is guaranteed to be paid to your beneficiaries upon your death as long as the policy is held in-force.

Level Premiums:

Premiums typically remain level throughout the life of the policy, providing predictability in your financial planning however increases to premiums still occur.  Long term there may be significant savings from implementing a ‘level’ premium policy.  Generally a younger a client is when they implement a ‘level’ policy the greater the long term savings.

Benefits of Whole of Life Insurance

Permanent Coverage:

Provides lifelong protection, ensuring your beneficiaries receive a payout if you pass away and the policy if in-force.

Stable Premiums:

Level premiums provide consistency and predictability in your budgeting.

Considerations for Whole of Life Insurance

Higher Premiums:

Whole of life insurance premiums are generally higher under a ‘level’ premium than term life insurance premiums due to the lifelong coverage. In contrast,  Whole of life insurance premiums are generally lower initially under a ‘stepped’ premium than term life insurance premiums however may become more expensive as the premiums increase with age.

Life Insurance via Superannuation

What is Life Insurance via Superannuation?

Life insurance via superannuation is a type of life insurance that is offered through your superannuation fund. Superannuation is a retirement savings system in Australia, and many super funds include life insurance as part of their offerings. This type of insurance typically includes life cover (death benefit), total and permanent disability (TPD) cover, and income protection cover.

Key Features of Life Insurance via Superannuation

Automatic Coverage:

Many super funds automatically provide a default level of life insurance coverage when you join the fund. You can usually adjust the level of cover to suit your needs however the addiotnal cover will require a full application with underwriting.

Premiums Paid from Super Balance:

Premiums for life insurance via superannuation are deducted from your superannuation account balance, rather than your take-home pay.

Tax Advantages:

Premiums paid from your superannuation account may have tax advantages, as they are generally paid from pre-tax contributions and tax deductible to your super fund.

Beneficiary Nomination:

You can nominate beneficiaries to receive the death benefit from your superannuation account.

Benefits of Life Insurance via Superannuation:

Convenience:

Automatic coverage and premiums deducted from your super balance make it easy to manage.

Cost-Effective:

Group insurance policies offered through super funds can be more cost-effective than individual policies.

Tax Benefits:

Potential tax advantages can make this type of insurance more affordable.

Considerations for Life Insurance via Superannuation

Limited Coverage:

Default coverage levels may be insufficient for your needs, requiring you to adjust the cover amount.

Impact on Retirement Savings:

Premiums deducted from your super balance reduce the amount available for your retirement savings.

Complex Claims Process:

The claims process for life insurance via superannuation can be more complex and time-consuming compared to individual policies or an underwritten policy.

Conclusion

Choosing the right type of life insurance is a critical decision that depends on your individual circumstances, financial goals, and preferences. Term life insurance offers affordable and straightforward coverage for a specified period, making it suitable for those seeking temporary protection. Whole of life insurance provides lifelong coverage, offering stability. Life insurance via superannuation offers convenience and potential tax benefits, but it may require adjustments to ensure adequate coverage.

Why Choose Morgan Insurance Advisors for Your Life Insurance Needs

At Morgan Insurance Advisors, we bring a wealth of specialised knowledge in the life insurance market. Our team of experienced advisors provides expert guidance tailored to your unique needs, ensuring you make informed decisions about your life insurance options.

We take the time to understand your individual financial situation and goals. By offering customised solutions, we ensure that your life insurance policy aligns perfectly with your needs and provides the best possible protection for you and your loved ones.

Our extensive network of insurance providers allows us to offer a variety of life insurance products. This means you have access to the best options and can choose the policy that suits you best.

Thanks to our strong relationships with insurance providers, we can often secure more favourable terms and rates than you might achieve on your own. Our negotiation skills ensure you get the best value for your policy.

Our commitment to you doesn’t end once your policy is in place. We provide continuous support and advice, helping you manage your life insurance effectively over time. Whether you need to update your policy or have questions about your coverage, we’re here to assist you every step of the way. Contact us today.