Context & Problem

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Life insurance provides a lump sum payment if you die or are diagnosed with a terminal illness (usually meaning less than 12–24 months to live). It’s designed to give your family financial stability — paying off the mortgage, covering living costs, or funding your children’s education.

But many Australians are either underinsured or unaware of what their policy covers. Some rely on default cover through super without checking if it’s enough. Others cancel policies because of cost, not realising how much they’re giving up.

Making informed choices now can make a huge difference for your family if the unthinkable happens.

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1. What Are the Main Types of Life Insurance?

Insurance TypeWhat It CoversLife coverLump sum paid on death or terminal illnessTPD insuranceLump sum if you become permanently disabled (explained in separate article)Income protectionMonthly payments if you can’t work due to illness or injuryTrauma/critical illnessLump sum if diagnosed with major illness (e.g. cancer, stroke, heart attack)

You can hold these separately or bundle them in one policy.

2. How Much Cover Do You Need?

Everyone’s needs are different, but a common starting point is:

• Mortgage + other debts
• 5–10 years of living expenses
• Education costs for children
• Funeral and medical expenses

Example:

• Mortgage: $450,000
• Living costs: $60,000/year × 5 = $300,000
• Education buffer: $50,000
  = $800,000 cover

ASIC’s MoneySmart Life Insurance Calculator can help estimate your number.

3. Inside Super vs Outside Super

FactorInside SuperOutside SuperPremiumsPaid from super balancePaid from after-tax incomeTax-deductible?Yes (to the fund)NoClaim accessMay be delayed due to super rulesUsually faster and more flexibleCustomisationLimitedGreater choice over cover types

Tip: Super-based cover is convenient but not always tailored. It often ends at age 65 or 70 and may not reflect your actual needs.

4. Typical Costs

Premiums depend on your:

• Age and gender
• Health and lifestyle (e.g. smoker status)
• Occupation
• Amount of cover
• Type of policy (stepped vs level)

Rough monthly cost examples (non-smoker, age 35):

• $500,000 life cover inside super: ≈ $30/month
• $500,000 life cover outside super: ≈ $40/month

These are ballpark figures. Premiums rise with age — especially for “stepped” cover.

5. Watch for Common Traps

• Automatic expiry: Some policies cancel automatically at a certain age
• Stepped premiums: Costs rise each year — and may become unaffordable later
• Health exclusions: Pre-existing conditions may be excluded if not disclosed
• Lapsed cover: Missed payments or inactive super accounts can cancel your policy

Check your policy regularly and keep your contact details up to date with your insurer or super fund.

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Isn’t this just for old people?

Not at all. Life insurance is most valuable when others rely on your income—typically in your30s, 40s, and 50s. And premiums are lower when you’re younger and healthier

I have life insurance in my super — isn’t that enough?

It might be a good start, but many default policies only cover $100k–$200k—far below what most families need.

What if I don ’ t have kids?

You may still want life cover if you have a partner, debts, or want to leave something behind for loved ones.

Do claim s really get paid ?

Yes—most are. According to APRA’s latest data (2023), over96%of life insurance claims arepaid. Claims are most often declined due to non-disclosure or ineligibility, not fine print.

What happens to the money if I die?

If the policy is outside super, your nominated beneficiary receives the pay out directly. If inside super, the trustee pays it to your dependants or estate, depending on how you nominated this on your super forms.

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