Family Insurance Provides Life Cover for The Whole Family

Published: June 21, 2018

In life, your family is the most important thing. You love your family and want to protect them. Family insurance can cover the whole family without breaking the bank.

Term life insurance can protect your loved ones from the costs of unexpected death; funeral costs, mortgage payments, unpaid loans and debts. By adding your spouse to your policy and including a child rider, you will have the means to protect your whole household.

We delve into how you can secure your family's financial future with life insurance, the benefits that are offered and the discounts you can generally get.

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What is family term life insurance?

Family life insurance is designed to cover all members of the family, including the working spouse, stay-at-home-parent, and even the children. If illness or injury were to strike a member of your family, could the remaining family members cope with the financial stress?

Family life insurance in Australia simply means life insurance but is often used to explain how this kind of policy can offer financial security to your whole family, including your spouse, children and other dependants.

There are some products which sit under the umbrella of life insurance:

  • Life Insurance: Pays a lump sum to your estate or beneficiary in the event of death or terminal illness.
  • TPD Insurance: Pays a lump sum if you suffer from a total and permanent disability.
  • Trauma Insurance: Pays a lump sum if you suffer a traumatic event or condition as outlined in your product disclosure statement.
  • Income Protection Insurance: Pays up to 75% of your income for a specified period should you suffer sickness or accident and cannot work for longer than the waiting period.

What does a family life insurance policy offer?

Family life insurance provides a lump sum benefit if the insured person passes away and can help their spouse pay for the mortgage, childcare, housekeeping, and the funeral. You can generally get one family life Insurance policy providing cover for the whole family; spouse, children and potentially your parents, depending on whether you purchase a single or joint life policies.

Life insurance is usually seen as more critical for the predominant income earner, but a stay-at-home spouse or secondary breadwinner should also be covered to ensure your family's financial security.

The goal of life insurance for your family is to protect:

  • Your spouse and their contribution as a breadwinner or home manager.
  • Your children and their future potential.
  • Yourself and your contribution as a breadwinner or home manager.
  • Other dependants, for example, your elderly parents.

Case Study: Sarah and Daniel’s family life insurance story

Sarah, a stay-at-home mother aged 42, is married to Daniel and has three children. Sarah was diagnosed with invasive breast cancer and underwent a full mastectomy followed by chemotherapy. As a result of the treatment, Sarah was very unwell and at times could not perform her usual domestic duties.

Initially, Daniel had to take time off work to care for his wife and children. After two months he was able to go back to work. However, Daniel cut back on his work hours taking a pay decrease of 25%. A nanny was arranged to look after their children, as well as a cleaner and meal service. Sarah's medical expenses were also a strain on the family.

Thankfully they had insurance to protect their family, and Sarah was fully insured and received a trauma benefit which covered the increased expenses and Daniel's reduced income. Had they not been protected, they would not have been able to meet their mortgage repayments.

How does family life insurance work?

Your life cover can typically be updated at any time to support significant life changes, like getting married, and starting or growing a family. If your policy is guaranteed renewable, you can generally increase your level of cover, without supplying additional medical information, when these big life events occur.

Steps to protect your family financially

  • Step 1

    Purchase a single or joint life insurance policy. You and your partner can buy separate life policies, then name each other as beneficiaries, or you might decide to buy a joint policy that covers both you and your partner on a single plan. Review the pros and cons of joint vs single life policies before making your decision.

  • Step 2

    Add a child rider to your joint or single life insurance policy for an extra fee. Children’s life insurance will generally pay a lump sum amount of up to $10,000 if your child suffers a traumatic event, is diagnosed with a terminal illness or passes away. Be sure to consult your product disclosure statement (PDS) for specifics.

With a life insurance policy for every adult and a single child rider for all your children, everyone's protected.

The importance of life insurance for parents

As parents of young children or grown kids that still depend on you, your financial commitments are high, which is why you need to consider what would happen to your kids if you or your partner suddenly dies. Life insurance for parents helps your children to continue their journey in the world, without having to worry about how they’re going cope financially.

What are the life insurance beneficiary rules for spouses?

A life insurance policy is a contract between the insurance company and the insured person. The insurer pays the benefit amount to the nominated beneficiary; this could be your spouse, siblings or anyone you choose. For your spouse to receive the life insurance proceeds, the policy owner, usually the insured person, must nominate them as the primary beneficiary.

If you and your partner have a joint life insurance policy, you can nominate each other as beneficiaries or you can decide to nominate your children, parents or whoever makes the most logical choice.

Find Affordable Life Insurance Plans for Your Family

How much cover do we need?

Families are entirely dependent on the income of the breadwinner(s). Whether you're a single parent or a couple who have children, make sure you have adequate family life insurance. To calculate how much cover you would need, consider the following:

  • Your income over the remainder of your working life, with some allowance for inflation.
  • The dollar value which would have to be paid for if you or your partner were no longer capable of performing home duties. For example, childcare, cleaning, transportation, cooking, home maintenance, accounting, and laundry.
  • The funds required to allow your children to complete their education and any additional amounts required for tertiary study and realisation of their full potential.
  • The cost to provide home and medical assistance for dependent relatives who may require independent care.
  • Whether you have any relatives, charities or children from previous marriages who you want to provide for.

How much does family life insurance cost?

Insurers consider a number of factors when determining the premium amount you'll pay, including your age, overall health, gender and smoking status. The amount of cover you purchase and where in Australia you live will also have a significant impact on the cost of your family insurance.

Life insurance for low-income families

While free life insurance for low-income families is not generally available in Australia, the government does provide support for Australians with a disability, including your family and children. The NDIS helps families with disabilities to receive reasonable and necessary funded support.

You can also keep life insurance premiums more affordable, by:

  • Buying when young: Age has a significant impact on life insurance rates, because generally the older you get, the more likely you are to claim because of an illness or injury.
  • Free built-in child cover: Select insurers offer free child cover of up to $10,000 for each child.
  • Discounts for couples: If both you and your partner purchase life cover from the same insurer you could get a discount of up to 10% off your premiums, depending on the insurer and type of cover you purchase.
  • Bundle policies: When buying TPD and/or trauma cover in combination with your life insurance policy, from the same insurer, you may be able to save money.
  • Shop around: Compare policies from leading life insurance companies in Australia to find one that fits your requirements and budget.

What to tell your family about your life insurance policy

Now that you have life cover protecting your whole family, you must make sure they know about this policy so when it comes time to claim; they have all the information they need. Make sure your family know:

  • Where you keep the policy documents.
  • Who the beneficiaries are.
  • Which life insurance company you’re with.
  • The exclusions on your policy, so they know what they can’t claim for.
  • Benefits included, for example, a funeral advancement benefit can help them pay for your final expenses while they wait for the full claim to pay out.
  • Outstanding debts and liabilities they’ll need to cover when you’re gone.
  • How you want them to spend the money.

Frequently asked questions and answers

Can you buy life insurance on a family member?

Buying life insurance for someone else is usually possible and legal, although the insured person must consent by following through on their duty of disclosure, meaning they need to answer the application questions as honestly and accurately as possible. You'll then be the owner of the policy, and thus responsible for premium payments. 

How does baby life insurance work?

A life insurance policy purchased on the life of your baby (over the age of 2 years) will generally be an optional benefit, offered by select insurers, which can usually be added for an extra fee. Although these policies are typically small, about $10,000, it can provide parents with the financial stability they need to not work for a period, offering them time to grieve.

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