What questions to ask when buying life insurance?

Matthew Lang

Matthew Lang

Updated 15/04/2021
Fact Checked

Identifying what you want out of life insurance before you buy and knowing the purpose of your life cover will help you choose the best policy. Find out more.

What questions to ask when buying life insurance?

What questions to ask when buying life insurance

Key Points

  • Identify what you want out of life insurance before you buy. Knowing the purpose of your life cover will help you choose a policy that meets your needs.

  • Read the Product Disclosure Statement (PDS) for a life insurance policy before you buy. It will tell you what's included and excluded in the policy.

  • Inform your beneficiary or beneficiaries about the claims process, as they are the ones who would need to make a claim if you were to pass away.

Whether you're new to life insurance or thinking about switching policies, there are a few questions you should ask first.

Not all life insurance policies are the same, and not everyone wants the same thing out of life insurance.

Asking questions is part of doing your research to make sure you've got a life cover policy that meets your expectations.

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1. What exactly do I want from my life insurance?

Start by pinpointing just what it is you want out of life insurance.

It's easy to assume that the sole purpose of life cover is to leave money behind for your family, but there's more to it than that.

You'll need to identify who you want to leave money to, why you want to leave them money, and how much to leave.

There are plenty of good reasons why you'd like to leave behind a sum of money for your loved ones, such as:

  • Cover your outstanding debts so your family doesn't have to

  • Donate money to a charity that is important to you

  • Help your beneficiaries maintain the standard of life they currently have with your income

  • Leave an inheritance for your children

Once you know why you want life insurance, you can better assess the type and amount you will need.

2. How much life insurance do I need?

Underinsurance is a problem in Australia, as many people underestimate the amount of money their loved ones need to pay off debts and cover ongoing costs.

To figure out how much life insurance you need, take stock of your debts and assets.

Subtract your total assets from your debts to get a starting figure: this is how much you'll need to cover the debt you'll leave behind.

If you intend for your insurance benefit to cover regular expenses like groceries, fuel, rent, school fees, and utilities, you'll need to factor those into the equation.

3. What types of life insurance policies are available?

There are four main types of life insurance policies, but the details of each vary by insurer.

Term life cover

Also called death cover, this pays out a lump sum to your beneficiaries if you die.

Total and Permanent Disability (TPD) cover

Pays out a lump sum if you are permanently disabled and unable to work again.

Trauma cover

Pays a lump sum to cover short-term expenses associated with a critical illness or injury.

Income Protection

Pays a monthly sum for a set period of time if you are temporarily unable to work due to an injury or illness.

You may wish to purchase one policy or bundle multiple policies together, depending on your needs.

Types of Life Insurance

Life Insurance

Also known as: Life cover, death cover

Good for: Anyone with someone who depends their income, such as spouse, children, parents, or other family members.

A lump sum is paid to your beneficiaries if you pass away or become terminally ill. This money can go towards ongoing debts and bills, allowing your dependents to sustain their lifestyle.

Total Permanent Disability (TPD)

Also known as: TPD cover

Good for: People who would not be able to continue working if they were permanently disabled, and people who would not be able to maintain their current lifestyle if they were unable to work again.

Pays out a lump sum if you are permanently disabled due to a serious injury or illness, intended to cover your cost of living in the future if you are unable to work again.

Trauma Cover

Also known as: Critical illness cover

Good for: People without emergency savings or with limited health insurance.

Pays out a lump sum to cover your short-term expenses if you are diagnosed with a major medical illness or suffer an injury.

Income Protection

Also known as: Salary continuance

Good for: People who are still working and depending on their own income, whether it is to support themselves or others.

Covers a percentage of your income for a fixed period if you aren't able to work because of an accident, illness, or trauma.

4. What is included in my life insurance policy?

All policies are different, so it's important that you read the Product Disclosure Statement (PDS) before purchasing a policy.

This document goes into detail about what's included and excluded, along with the terms and conditions of the policy.

If your policy includes any additional features, such as premium-free child cover or an advance for funeral expenses, this should also be explained in the PDS.

If you have any questions about the PDS or what is included in your life cover, do not hesitate to ask your insurer or life insurance specialist.

5. What are my premiums?

Your life insurance premium is the price you pay for your life cover.

You may have the option of paying monthly premiums or annual upfront premiums, as well as choosing between stepped and level premiums.

Be aware of the consequences of lapsed payments, as it could mean an automatic cancellation of your policy.

Stepped vs. Level Premiums

Stepped premiums start cheap, but usually increase each year, while level premiums start more expensive, but do not change as you age, They may, however, increase due to insurer fee changes or inflation.

Besides knowing how much your premiums are, you should also ask the following questions:

  • What would cause my premiums to change?

  • How often can I pay my premiums?

  • What will happen if I miss a premium payment?

  • How can I pay my premiums?

  • Am I eligible for any premium discounts?

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6. How can my life insurance be adjusted?

A good life insurance policy is flexible, meaning you can change your level of cover as your needs change.

For example, you should reassess your life cover whenever you experience a major event, such as buying a house, changing jobs, or having children.

If you want to upgrade to a higher cover amount or add more features to your policy, ask your insurer how this would be possible.

It is also wise to be aware of the answers to the following:

  • When does the policy expire?

  • Is the policy renewable?

  • Can I cancel the policy?

7. When does the life insurance cover start?

Your policy start date is not necessarily the same date you purchased the policy.

Check to find out the exact date your policy starts, and whether or not you are covered for all inclusions from that date.

Income protection life insurance policies often include waiting periods, which is a period of time after experiencing an illness or injury before you can make a claim.

8. Should I get life insurance through my super?

Employers who offer a default superannuation fund are required to offer life insurance through the fund.

While you are not required to maintain this life cover, it is worth considering. Life insurance through super allows you to pay your premiums using pre-tax funds, freeing up your day-to-day cash flow.

On the other hand, these payments reduce your super balance, and the life cover through super can sometimes be more restricted than those out of super.

Don't assume that your life cover in super is sufficient; do your research and know what you're covered for.

Life Insurance Through Super

More than 70% of Australian life insurance policies are currently held inside super. About 17,000 disability benefits and 46,000 death benefits are paid each year.

9. How can a claim be made on my policy?

When it comes to term life insurance, you won't be the one making the claim.

However, there are steps you can take to make the process easier for your beneficiary or beneficiaries.

Tell your nominated beneficiary that they are your beneficiary.

If they don't know, then they may not be aware that they need to make a claim.

The life insurer is not required to contact them.

Be aware of the claims process for your insurer. This information is usually found in the PDS or on the insurer's website.

Share the claims information with your beneficiary, so they know what to do if they do need to make a claim.

Don't be afraid to ask any questions you have about life insurance.

The more you know, the better equipped you are to compare policies and buy with confidence.

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​​The information contained in this guide is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. As such, it is important that you consider the appropriateness of any advice and the relevant product disclosure statement (PDS) before proceeding. Check with a financial professional before making any decisions.

Matthew Lang is the general manager of life insurance at Compare Club. Matthew leads a team of dedicated professionals who are passionate about helping individuals and families make informed decisions about their life insurance needs. Whether it's finding the right coverage for your specific circumstances, comparing policies, or optimizing your existing policy, Matthew and his team are here to provide expert guidance and support.

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Matthew Lang

General Manager of Life Insurance