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Types of Life Insurance

Written by

Shaun McGowan

An Overview of Life Insurance Policy Types

There are five main types of life insurance in Australia, which we’ve covered below. You can use this information to help find the policy that is right for your circumstances and priorities.

Whole Term Life Insurance (Life Cover/Death Cover)

Sometimes called life cover or death cover, this insurance policy pays out a lump sum in the event of your death.

When you secure your policy you’ll nominate beneficiaries to receive these funds. In most cases, the beneficiaries are families who use the funds to cover their living costs after you’re gone.

Find out more about Whole Term Life Insurance with Money Matchmaker

Income protection insurance

Income protection insurance pays either a lump sum or ongoing payments of a percentage of your wage (up to 85%) if you are unable to work.

These payments will last a set period from six months to five years and are meant to help cover your costs, service debt and pay for medical care until you can get back to work.

Income protection insurance with Money Matchmaker

Trauma insurance

Trauma insurance provides a one-off lump sum payment if you suffer from a serious illness or major injury, like a heart attack or a car accident. These payments can help you cover your expenses, rehabilitation and medical care.

Trauma insurance with Money Matchmaker

Total and permanent disability cover (TPD)

Total and permanent disability cover or TPD guarantees one lump sum payment if a serious illness or accident renders permanently disabled or unable to work.

You can choose whether your policy covers you if you’re unable to work in any job suited to your skills and experience, or if you’re unable to work in any profession.

Total and permanent disability insurance with Money Matchmaker

Funeral insurance

Funeral insurance pays out a lump sum in the event of your death to be used to cover costs associated with your funeral.

Do you need life insurance? Find out with Money Matchmaker

Whole Term Life Insurance

Death cover, or whole term life insurance, is what most people think about when they hear the words life insurance, but several other products fall under the life insurance banner. 

One type of policy isn’t for everyone so before you buy life insurance it’s worth asking:

  • If anyone depends on your income
  • If you have financial obligations to meet such as debt repayments
  • If you can afford the premiums

Life Insurance Policy Add-Ons

Trauma Insurance

Trauma insurance guarantees a lump sum payment in the event of certain traumatic illnesses or injuries. This payment can be used to cover medical costs, loss of income, accommodation, rehabilitation, debt repayments or anything else that’s necessary as a result of the illness or injury. 

The conditions covered by this insurance include traumatic diseases and illnesses like cancer, stroke, serious brain injury and more. 

Before you purchase a policy you should:

  • Ask yourself whether you need it and how much cover you need. 
  • Compare all your options. 
  • Look at your other insurance policies in case they cover traumatic injury and/or illness. 

You can buy trauma insurance online through most providers including insurance companies, brokers and superannuation - but in some cases, you will be required to visit a physical branch. Most Australians over 16 and under 55 are eligible for trauma insurance.

Income Protection Insurance

Income protection insurance is a type of insurance that pays out monthly benefits in the event that you lose work due to a serious illness or injury. 

Usually benefits are 75% to 85% of your salary or an amount agreed upon before you purchase your policy. 

The payments can be used for anything but generally, they are used to cover the costs that your salary usually does like mortgage repayments, groceries and bills. 

While income insurance can be very useful it’s not for everyone - those without dependants, bills, rent or mortgage repayments may not need coverage.

Before buying a policy it’s important to compare everything that’s on the market, either by shopping around online or speaking to an insurance broker. To compare income protection insurance policies consider:

  • Sum insured.
  • Length of the benefit period.
  • Length of the waiting period. 
  • Exclusions. 
  • Expiry age. 
  • Affordability. 
  • Premium type: stepped or level. 

When purchasing insurance you should also take time to tailor your policy to your needs so that you have the right level of cover and aren’t paying more premiums than you need to. For help tailoring your policy to you speak to an insurance advisor or broker. 

Total and Permanent Disability Insurance

Total and permanent disability insurance is a type of insurance that pays out a lump sum if a serious illness or injury leaves you disabled and unable to work. 

This can be used for whatever the policyholder chooses but usually goes toward extra costs associated with the disability such as medical care and rehabilitation. 

Every TPD policy is unique so it’s important that you shop around to find one that’s affordable and suited to you. It’s particularly important to consider the following when comparing policies:

  • Premium amount. 
  • Benefit amount. 
  • Policy exclusions. 
  • Whether the policy’s cover is own occupation or any occupation

Most Australians from the ages of 18 to 55/60 will be eligible for TPD insurance but certain lifestyle choices (like smoking) and/or health risk factors may cause insurers to deny coverage or charge increased premiums. 

What’s the difference between trauma insurance and TPD?

The main difference between trauma insurance and total and permanent disability (TPD) insurance is their intended purpose. 

  • Trauma insurance is meant to cover the costs that arise as you recover from a traumatic injury or illness and get back to work. 
  • TPD on the other hand is meant to cover the ongoing costs of managing an illness or injury so serious that you will never be able to go back to work. 
How to compare and choose the right life insurance cover

Continue reading our series of guides below to learn more about life insurance.

Life Insurance Starter Guide

On this page:

  • Life insurance basics
  • What does life insurance cover?
  • Do you need life insurance?
  • Benefits of life insurance
  • How to choose the right cover

Read more

Choosing a Life Insurance Policy

On this page:

  • Before you apply
  • How much cover to choose
  • Life insurance premiums
  • Comparing life insurance policies
  • Life insurance for seniors

Read more

How to Get Life Insurance

On this page:

  • Life insurance eligibility
  • Where to buy life insurance
  • Life insurance and superannuation
  • The cost of life insurance
  • Free Life Insurance Quote

Read more

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About the Author

Shaun McGowan from money.com.au

Shaun

McGowan

Shaun McGowan

Shaun is the founder of Money.com.au and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.

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