Tips on choosing life insurance

There’s a lot of pressure on household budgets right now with the rising cost of living – which makes planning for the future more important than ever. Life insurance can offer a safety net to protect you and your family’s future. 

Let’s unpack exactly what life insurance is, how it works and why you might need it.

What is life insurance? 

You probably have different policies in place for health insurance and to insure your car, but life insurance is a little bit different: it insures you. It’s a financial product which insures your ‘life’ – so if the worst were to happen and you passed away, your nominated beneficiaries would be taken care of with a payout.

What does that mean? Well, typically when you take out a life insurance policy, you’ll be able to choose up to five beneficiaries – such as a spouse, children, or other family members . These are people who would be most impacted by the policyowner’s death and the loss of income. For this reason, life insurance may be worth considering during the years when you’re working and raising a young family.

How does life insurance work? 

When you take out a life insurance policy, you can apply for a benefit amount to suit your needs – this is how much you want to be insured for. You’ll need to consider all the financial expenses your family might need to cover if you were no longer around. 

That figure might include:

  • any outstanding debts;
  • funeral expenses;
  • paying out what’s left on the mortgage; and 
  • your family’s living costs for a certain amount of time. 

You should also consider factoring in the amount required to replace your lost income, so your loved ones can be supported

Crunching the numbers with a life insurance calculator can help you get started.

Different types of life insurance 

Life insurance is available in different forms, including:

Life insurance  

If you’re looking for a policy which can give you peace of mind that you’re covered until you pass away, then life insurance may be worth investigating.

This type of insurance offers you lifelong cover with no age expiry, for as long as you continue to pay your regular premiums. Some life insurance policies may pay the entire benefit in advance if you’re diagnosed with a terminal illness with less than 12 months to live – this timeframe can vary depending on your insurer. Some policies may also pay a portion of the benefit in advance to cover the cost of the policy holder’s funeral, while the claim is being assessed, taking the pressure off grieving families to make arrangements.

Term life insurance  

If you’re interested in taking out a policy for a certain amount of time, term life insurance may suit you better. These policies cover you for a fixed term, such as 10, 15, 20 or 25 years, and if you (or the policy holder) pass away during the term of the policy, your nominated beneficiaries will receive a payout. However, if you outlive the term of the policy, the cover will expire with no payout.

Optional extras cover 

Like any insurance, you can choose to apply to take advantage of additional benefits, which may be added to your life insurance policy for an added premium. These benefits include:

Serious illness insurance  

You can do all the right things and still get ill – so serious illness   or critical illness cover may be a ‘just in case’ type of extra. If diagnosed with a serious illness that’s covered by the policy (such as cancer, heart attack, heart bypass surgery or stroke), you could be paid a lump sum which can be used to cover medical expenses and loss of income while you’re receiving treatment. Guardian Serious Illness Insurance can provide cover for up to $500,000 to provide financial support after diagnosis of a serious illness like cancer, heart attack, stroke or heart bypass surgery.   

Total & permanent disability insurance (TPD)  

Nobody likes to think about the possibility of becoming permanently disabled – or being unable to work again due to illness, but if you need to adapt to challenging and changing life circumstances, total & permanent disability insurance (TPD) may save you some financial stress. TPD is an optional extra that could help cover things such as rehabilitation costs, medical expenses or even mortgage payments. Guardian Total & Permanent Disability Insurance can provide cover from $50,000 up to $1 million depending on your age.

Children’s insurance 

With this optional extra you can generally take out a policy after your child turns two. If your child becomes seriously ill or passes away, the benefit amount can help to cover medical costs or funeral expenses and enable you to take a step back during this challenging time. Guardian Children’s Insurance can pay between $20,000 and $50,000 depending on the benefit amount you apply and get approval for.  

What if I don’t qualify for life insurance? 

Sometimes, you may not be able to take out life insurance due to one or more of the following reasons:

  • You may have certain health conditions such as obesity or diabetes.
  • You may have a high-risk occupation.
  • You may take part in high-risk hobbies like skydiving.
  • You may have a high alcohol intake or take recreational drugs.
  • You may have had a previous life insurance policy cancelled.

If you’re unable to take out life insurance directly, you could look at other options. Some options you could consider could be through your superannuation or employer. Every insurer is different so be sure to shop around to understand your options.

Income protection insurance 

This type of insurance could be helpful, especially if you work for yourself and suffer an illness or injury that prevents you earning an income. Even if you are employed, income protection insurance can be a good safety net, should your sickness or injury last beyond your leave entitlement. Income protection insurance benefits are paid out as a regular income stream during the time you’re unable to work so you can still cover your day-to-day expenses. 

Funeral insurance 

Funeral insurance is a type of life insurance that is designed to cover funeral costs and other final expenses. If you’re the policy holder and you pass away, your beneficiaries receive a lump sum benefit which they can use to pay for your funeral costs, to settle your estate or to use as needed for any other end of life costs.  

Learn more about life insurance 

If you are considering life insurance and want to learn more about your options, visit Guardian Life Insurance or request a quote today.

Author photo of Rachel Smith

Rachel Smith

Finance Writer

Rachel Smith is a personal finance, business, and lifestyle writer with over 20 years of experience as a journalist, copywriter and content producer for leading Australian publications, websites and businesses.