Term Life Insurance and How To Make It Work For You
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.
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:
- The level of cover you applied for.
- The base rate premium your insurer offers.
- The premium style you choose: Stepped, level or hybrid.
- Your age. The older you are the higher your risk of claiming generally becomes.
- Gender. Males and females tend to have different attitudes toward their health and the pastimes they engage in.
- Smoking status. Smokers can pay up to double the premium price because of all the potential claimable consequences smoking has.
- Overall health, including your BMI and medical history. You might need to disclose all pre-existing medical conditions. Depending on the insurer’s underwriting process they might also investigate your family’s medical history.
- Additional cost policy solutions. Insurers often offer additional policy options to add more value to your policy, for example child cover.
How much term life insurance costs at different stages of life
|Stage of life for males|
|Stage of life for females|
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:
- 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.
- The beneficiary is not financially tax dependent, this usually refers to children older than 18 years.
- Your policy is owned by a third party or business.
Frequently asked questions and answers
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.