Comparing Whole Life Insurance with Standard Life Cover
Whole life insurance is no longer sold in Australia. Term life insurance is now considered a popular alternative and more affordable. Find out why.
by Gary Andrews
Last update 15 Mar 2021
Whole life insurance was popular in the '70s and '80s in Australia and commonly used as a way to save for retirement. But when compulsory superannuation was introduced in the '90s, insurers stopped offering this type of cover.
You may still hear the term being thrown about, which is why you've probably ended up on this page if you've been searching for anything to do with whole life insurance.
Let's take a look at what this type of life insurance offered and what type of similar insurance is available today?
Whole life insurance did what its name suggests -- covered people for their entire lives. It was also known as permanent whole life insurance or cash value life insurance and was similar to universal life insurance in America.
Before the introduction of compulsory superannuation in 1992, many people used their whole life to save for retirement. They'd give up their policy when they retired to access its cash value. If the policyholder passed away, their beneficiaries would get a payout.
Whole life insurance paid a death benefit, but also had a savings component called the "cash value". This could be invested, withdrawn or borrowed against.
To get hold of the cash, you'd need to request a withdrawal of funds or a loan. Loans that were unpaid reduced the death benefit by whatever was still outstanding to pay, while withdrawals reduced the cash value but not the death benefit.
Confidence in these types of policies was already beginning to dwindle even before 1992. Inflation had impacted the benefit amounts that were paid out and increased living costs meant the overall payout stopped being enough for a comfortable retirement.
In 1992, super was made compulsory to ensure all Aussie workers had enough money for their retirement.
That change to life savings meant many life insurers began to offer a more affordable alternative called term life insurance.
It's unlikely. At this stage, there are no plans to re-introduce this type of insurance back into the Australian market.
You can get life insurance through your superannuation or you can buy a standalone term insurance policy.
Term life insurance, also known as life cover, death cover or simply life insurance, will be familiar to many Aussies. It pays a lump sum to your beneficiaries if you die or get diagnosed with a terminal illness, and generally offers a larger death benefit than the life insurance most of us have through our super funds.
It can get a bit complex but there's a number of reasons why people may choose to buy term life cover.
There are also three other types of life insurance that can be purchased with term cover or as standalone policies:
There's quite a few differences between the two. This table details the main differences
It's important to find the sweet spot for a term length that means you can still afford your premiums while making sure your family won't be financially burdened when you're gone.
If you're a new parent, for example, you probably want a policy that covers the amount of time your child will be financially dependent on you. That can be anywhere from 20 to 30 years.
New homeowners, on the other hand, might want to consider a 30-year term, since that's likely how long your mortgage will last for.
If you took out a policy before 1992, you can continue to be on it as long as you keep paying your premiums. Your other options are to cancel the policy and take the cash value or keep the death benefit for a shorter period.
If you'd like to switch to term life insurance, we're here to help you compare insurers and find a price that fits your budget.
The level of cover you need and how much your premiums are really depend on your circumstances and what stage of life you're at.
Before pinning down a benefit amount, have a think about what costs your family may need to cover if you're no longer around. These could include mortgage repayments, school fees, loan repayments and funeral costs.
You should take stock of your current finances, too. The more debt and expenses you have, the more cover you'll probably need.
That's an easy one -- through Compare Club. We'll help you compare your life insurance options from our panel of trusted insurers.
While whole life insurance was popular for its investment and cash value benefits, today's alternative of term life insurance is much more affordable, plus it gives you the reassurance of knowing your family will be looked after when you're gone.
Compare and buy term life insurance with us and you'll also have the reassurance of knowing you're on the best deal available.COMPARE & SAVE
This guide is of an informative nature only and not representative of Compare Club products. It should not be taken as medical or financial advice. Check with a financial professional before making any decisions.