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Term Life Insurance and How To Make It Work For You

Russell Cain Fact Checked Updated: 29 November 2021

Term Life Insurance is the most affordable way Australians can make sure their dependents are financially supported in the event of your death. Life insurance pays out a lump sum benefit to your nominated beneficiaries, which they can use to pay for your funeral and on-going living expenses, like mortgage payments, car insurances, and groceries.

In exchange for the protection your insurer provides you, you are responsible for paying your premiums, either annually, quarterly or monthly.

To find the best term life insurance for your budget and specific requirements, you might want to start by comparing price and features of Australia’s top 10 life insurance companies.

What is term life insurance?

Term Life Insurance is generally described as the least expensive way to purchase life insurance, for a set period of time called a ‘term’. It provides a lump sum payment when you die or are diagnosed with a terminal illness (generally less than 12 months to live) and is designed to protect the future finances of your loved ones. Once your cover term ends, it is up to the policy owner to renew the policy or let it expire.

How does term life insurance work in Australia?

Unlike whole life insurance which provides life-long coverage at a fixed premium, term life insurance expires on the date stipulated in your product disclosure statement (PDS) and premiums are usually reviewed yearly, and your policy renewed.

Because of the complexities of whole life insurance, Australia only offers term life insurance policy options. So, when we talk about life insurance, we are generally referring to term life insurance.

Different insurers offer different term lengths, the policies we compare usually expire at your age 100, but best to consults your PDS.

How much term life insurance is enough

A general rule of thumb to calculate the amount of cover you need is to times your annual salary by 10. However, make sure you have enough cover to:

  • Pay off any outstanding debt and mortgage payments.
  • Provide your loved ones with a financial safety net so they are able to live the lifestyle they’re accustomed to.
  • Help your children further their education.

How much does term life insurance cost?

Premiums are typically calculated based on a number of factors, including:

How much term life insurance costs at different stages of life

Stage of life for malesTALMLCBTAIAZurich
Twenties (25)$43.40$51.06$52.42$52.56$53.38
Thirties (35)$37.87$43.52$52.42$33.31$46.15
Forties (45)$74.28$74.48$94.69$62.18$81.99
Fifties (55)$263.74$267.82$307.24$239.10$270.51
Sixties (65)$1,046.66$1,055.48$1,196.06$947.91$1,115.60
Stage of life for femalesTALMLCBTAIAZurich
Twenties (25)$25.47$33.07$36.72$34.05$34.25
Thirties (35)$27.61$34.24$38.54$24.43$36.00
Forties (45)$54.66$56.23$72.35$45.61$62.30
Fifties (55)$180.33$181.01$209.42$155.45$187.63
Sixties (65)$684.35$626.88$725.68$638.10$671.12

Stepped premiums, paid monthly. The information in the tables above was calculated on 13 February 2018 and is based on the average monthly premium a non-smoking male and female living in Queensland can expect to pay for $1 million life cover. 

Why is term life insurance the best?

Term life insurance is the most cost-effective way to protect your family from financial loss if you pass away. The idea behind term cover is that by the time your policy expires, you retirement savings and other investments should be sufficient coverage, especially considering your children will most likely be independent by then. Term life insurance is the best option for people who prefer to keep their premiums low and rather invest any extra money they have.

Although whole-life insurance provides lifelong coverage, it’s a difficult product to understand and tends to cost a lot more than term policies.

Is term life insurance tax deductible?

No, generally, term life insurance premiums held in our personal name are not tax deductible. However, if life cover is held within your superfund, the premiums are usually tax deductible to your fund.

Is term life insurance taxable to the beneficiary?

No, term life insurance payouts are generally not taxed if paid directly to your spouse or financially dependent beneficiary, as defined by the Income Tax Assessment Act 1997. However, there are a few instances where the beneficiary might have to pay tax on the lump sum benefit:

  1. The policyholder decides that the death benefit should not be paid out immediately. Instead, it is withheld for a specified time after the insured’s death. The beneficiary will then be liable to pay tax on the interest generated during the given time period.
  2. The beneficiary is not financially tax dependent, this usually refers to children older than 18 years.
  3. Your policy is owned by a third party or business.

Frequently asked questions

  • What is 20-year term life insurance?

    Select insurers will offer you the option to choose how long you want your policy to remain in force for. A 20-year policy means you will be covered for 20 years once your policy has commenced.
  • How does group term life insurance work?

    With group term life insurance, the trustee (or employer) essentially takes out a group policy that covers all the members in their superannuation fund. This can be seen as a “one size fits all” policy option and usually provides death cover, salary continuance and TPD.
  • Should you buy term or whole life insurance?

    At present, you are only able to purchase term life insurance in Australia. In the past, many people found the savings component of whole life to be insufficient and their premiums too expensive. Term life is more flexible and cost-effective, and usually keeps up with inflation while remaining active for the term of your policy.  
  • Can you cash in a term life insurance policy?

    No, you cannot cash in a term insurance policy in Australia. Although Australians used to be able to cash-in their policies for up to 15% of the original value of the cover, this is no longer an available option. 

    Before cancelling your policy, you might want to consider first:

    • Making adjustments Find out what adjustments you can make to keep your premiums more affordable while still maintaining the level of cover you require. Perhaps you can quit smoking or eliminate some unnecessary add-ons. Ask your insurer if you can change from a stepped premium style to level premiums.
    • Compare policies You might find more affordable life insurance options when comparing similar policies from Australia’s leading life insurance companies.

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