What Is Life Insurance In Australia & How It Works

If you have a family that relies on you for financial support, a Life Insurance policy can provide you with peace of mind. This type of insurance can act as a safety net – helping to shield your family from financial hardship if something unexpected happens.

In this article, we’ll explain the fundamentals of life insurance and how to obtain coverage to suit your personal circumstances. We’ll also provide answers to some commonly asked questions such as:

• What is a life policy?
• How does life insurance work in Australia?
• How much life insurance is needed?
• What are life insurance costs?
• What does life insurance cover?
• When is the best time to buy life insurance?

What is life insurance?

Life insurance – also known as a ‘Life policy’, ‘Life cover’, ‘Death cover’, or ‘Term life insurance’ – is a form of insurance designed to pay out in the unfortunate event of death, severe injury, or illness.

Life insurance can ease the financial burden should one of these situations ever occur by providing a lump sum payout (known as a ‘death benefit’).

There are typically other features which may be available to your loved ones under your policy if you were to pass away, such as an advance on your cover to assist with funeral expenses or grief counselling. For example, with NobleOak’s Life Insurance product your loved ones would receive $15,000 of your life cover amount to assist with funeral expenses or other costs.

How does life insurance work?

Let’s take a closer look at life insurance and how it works. Essentially, your life insurance policy will pay a set amount of money if you die. A payout may also occur if you’re diagnosed with a terminal illness and given 24 months to live. If the payout is made and you recover, the money doesn’t have to be returned.

If you do die, the money will go to the people you nominated as beneficiaries, such as family members, who can then use it to help pay off debts. For instance, the money can be used to help clear a mortgage, household bills, fund the costs of your children’s education, or provide an ongoing income for a number of years. In fact, the funds in the event of a claim can be used for any purpose.

At NobleOak we offer fully underwritten life insurance, meaning that when you apply for cover, we’ll ask questions about your health and occupations, and we might also ask for a medical examination. If a doctor’s report or blood test is required – we arrange these at our cost. This process can take a bit longer upfront, but most importantly, this reduces the worry so you have a policy that is tailored to you and there may be more certainty at claim time.

How much life insurance do I need?

When selecting how much life insurance coverage you will need, it’s important to consider your level of debt and ongoing expenses, and the lifestyle you wish your family to maintain if you were to unexpectedly pass away.

For example, it can be helpful to think about your current household living expenses, your mortgage or other debt, and the type of education and support you’d like for your children now and in the future. This can help you calculate the level of cover you will need to financially protect your loved ones.

A ‘rule of thumb’ people often use to calculate the level of life insurance (death) cover suitable to them, is to multiply their salary by 10 to 20 times. People often use a higher multiple when they have younger children with high dependency.

If you’re responsible for looking after the home, you may need to consider the cost of accessing external childcare and home support to manage the household should you no longer be around.

Calculating the cost of life insurance

A common concern is: what about life insurance costs?

A good way to get an idea of your premiums is to use our Insurance Calculator – simply enter your details, and we’ll give you an estimate of how much insurance you potentially need. Then you can get a quote based on the level of cover that you are looking to purchase. This free calculator has been tested by independent actuaries and researchers, Rice Warner.

We’ve also put together a guide to help you understand your insurance premiums which includes information about taxes and stamp duty, amongst other topics.

NobleOak Life Insurance: what does it cover?

The good thing about life insurance is that you can tailor the level of cover to your individual circumstances and then adjust it according to your budget. Above all, it’s most important to ensure that your loved ones are adequately financially protected.

With NobleOak, you have the flexibility to take out NobleOak Life Insurance cover up to $25,000,000. Full details of what’s included in NobleOak Life Insurance can be found in our Product Disclosure Statement and Target Market Determination. You can also call us on 1300 041 494 to find out more.

When is the best time to buy life insurance?

If you’re moving up the property ladder or expecting a new addition to the family, you might start wondering about the need for life insurance.

These types of life events often lead to thinking seriously about our emotional, practical and financial responsibility for ourselves and others, prompting us to take steps towards greater financial security.

In this section, we’ll look at the top reasons why people take out life insurance:

Key changes in life circumstances

Examples of significant life changes that commonly trigger the need for insurance include:

• Marriage: With marriage comes commitments and new responsibilities, and life partners will often take out Life insurance with each other as the beneficiary.
• Having a child: This is a major life change with big responsibilities, and life and income protection insurance become particularly vital during children’s formative years.
• Divorce: Divorce can often lead to loss of income, and both parents having insurance can provide a financial safety net for children.
• Buying a house: Most of us need a mortgage to buy property, and new (and existing) homeowners need to think about how the mortgage will be paid if anything happens to them.
• Starting a business: Life Insurance for a business owner could mean providing enough funds for the business to continue in the event of their illness/disability or death.

Other common reasons for buying life cover

People often buy life insurance when a renewal notice is received from their current insurer – perhaps prompting them to investigate other options more appropriate to their budget and circumstances.

It’s also common for people to buy life insurance if a family member or friend experiences an accident or health event – which sometimes prompts them to think about their own vulnerability and mortality, and about what they need to do to protect loved ones. Major health events can include diabetes, heart attack and stroke, cancer and head and brain injury.

Are there other times to take out insurance?

There are other, less common times to consider taking out cover. For instance, it’s generally the case that life insurance is cheaper the younger and healthier you are.

This means buying life cover could be a good move even if you’re young and single, and buying your first home with family members as beneficiaries.

Income protection is also usually less costly when you’re young and healthy and could provide some financial security for loss of income due to accidents.

The death of a spouse or close friend or relative are also times when we naturally think about life insurance as the lump sum payment will help with funeral expenses as well ongoing living expenses.

Questions to answer before deciding on the best life insurance policy

This section will look at which questions you should ask before making deciding which life insurance policy is best for you.

1. Do you want to purchase direct life insurance or do you want to go through an adviser?

You can purchase a policy through a financial adviser, financial planner or broker who can guide you through the process of purchasing life insurance – including the different types of cover available – and the level of cover that is right for you.

Alternatively, you can purchase a policy from a direct life insurer, without needing to go through a financial adviser or insurance broker. NobleOak is a direct life insurer.

While financial advice is included in the services provided by an adviser or financial planner, you might want to consider that this advice typically comes with the extra cost of fees and commissions paid by the insurer to the adviser, which may then be factored into the premiums you pay.

With a direct life insurer such as NobleOak, you have the opportunity to deal directly without any extra fees.

2. Do you want fully or partially underwritten cover?

Some direct life insurers, including NobleOak, offer fully underwritten cover. This means a number of health, occupation and lifestyle questions are asked upfront. It also sometimes requires medical tests and access to your medical records. This results in greater certainty for the insurer about the risks that will be taken to insure you, and a greater level of certainty for you at claims time.

Some other direct life insurers only offer partially underwritten cover, in which your individual circumstances and risk factors are not factored in. This may increase uncertainty during claim time.

What is a life insurance underwriter? 

Underwriters are responsible for evaluating and assessing the risks associated with providing Life Insurance coverage to an individual. They analyse the applicant’s medical history, lifestyle, occupation, and other factors to determine the level of risk and decide whether to approve the policy, as well as what premium to charge. The underwriter’s goal is to ensure the insurance company offers coverage that aligns with the applicant’s risk profile while maintaining sustainability over time for the insurer.

3. How should you compare life insurance providers if you decide to buy direct life insurance?

You should research and compare insurance providers to find the right coverage for your objectives, financial situation and needs. Canstar and Finder are two examples of websites that can help you to do this – as they evaluate insurers based on reputation, financial stability, customer feedback and policy terms.

It is a good idea to obtain quotes from multiple providers to ensure cost-effectiveness and that you are choosing the right product features for you. Once you have decided which provider you want to move ahead with, you can either start your application online or speak to their customer service team.

Additionally, you can compare Life Insurance to find coverage that’s best suited to you and your financial situation.

Differences in purchasing life insurance

One of the questions we get asked regularly is: What is the difference between purchasing life insurance directly, through advisers or within a super fund?

As an award-winning life insurer in Australia, NobleOak is well positioned to answer this question. In this section we’ll explore the key differences between these various life insurance providers:

Buying direct

Buying life insurance directly means purchasing the insurance directly from the insurer without personal financial advice tailored to you. This means that any advice you receive will be general advice that does not take into account your objectives, financial situation, or needs.

Some direct life insurance can be fully underwritten and some may not be. If it is not fully underwritten, it may be quick to apply for, but the types and levels of cover could be limited. There will also likely be exclusions for pre-existing conditions.

If you’ve decided to source your life insurance product directly through a life issuer, it’s worth doing your homework to check exactly what you are signing up for…. and remember, it’s important that you consider and read the Product Disclosure Statement (PDS).

Comparison sites such as Canstar and Finder can be helpful in showing the differences between policies. Direct life insurance can be very accessible and affordable for those that know how much and what cover they require, without paying commissions for financial advice.

Through a financial adviser

Purchasing life insurance through an adviser can suit people who are unsure of what type and amount of cover they need. The adviser may work with you in completing what is called a ‘statement of advice’ or SOA. With this information, the adviser’s role is to source the best cover for your needs and budget. They can essentially do your homework for you. The insurance is usually fully underwritten and high cover amounts can be obtained. However, it is important to know that purchasing cover through an adviser often comes with financial adviser fees built into the premiums.

Through a super fund

Many people have their life insurance as part of their super fund. This will sometimes be referred to as ‘group life insurance.’ Many super funds have ‘default’ insurance cover, meaning they include cover you did not select. Only life insurance, some TPD insurance and income protection can be included in your super – not trauma cover.

Life insurance through a super fund involves regular deductions which are passed on to the insurer. With life Insurance through your super, cover can be limited and in the event of a claim, the payout would be made to a trustee. This typically leads to a more complex claims process and depleted super savings. The upside is there can be some tax advantages (but we are not tax advisers and you should speak to your accountant about tax).

At NobleOak, we offer life insurance directly to you, without adviser fees or high built-in overheads. Our products are fully underwritten and our life, TPD and income protection cover can be purchased within an SMSF if required. We also offer trauma cover.

Award-winning life insurance

Our knowledgeable team of insurance experts is based in Australia – you can call us on 1300 041 494 to ask questions about how life insurance works and whether it’s right for you.

You can also use our online Quote Tool for a quick and easy life insurance estimate.

What do you know about life insurance? Expand your knowledge by visiting our helpful guides:

• What Can Happen to Your Home If You Die Before Paying Off the Mortgage?
• Six Important Costs Your Family Faces If You Pass Away (And How Life Insurance Can Help Them Deal with Those Costs)
• Can You Get Life Insurance with Pre-Existing Conditions?

Any financial product advice is general in nature only and does not take into account your individual circumstances, objectives, financial situation, or needs. Before acting on it, please consider the appropriateness of the information, having regard to those factors. Any third party websites or tools referred to are subject to their own terms and conditions and NobleOak Life Limited makes no representation or warranty as to any information on those websites. Persons deciding whether to acquire or continue to hold life insurance issued by NobleOak Life Limited should consider the relevant Product Disclosure Statement and Target Market Determination for the product. Please also consider NobleOak Life Limited’s Financial Services Guide. NobleOak Life Limited ABN 85 087 648 708 AFSL 247302.