What is life insurance?

Jan 2023

What is life insurance?

Most people might think of life insurance as something that only covers death – and that’s certainly one part of it. But it’s more of an umbrella term that can include other benefits such as Total and Permanent Disablement (TPD), and income protection.

Life insurance should be a key part of everyone’s financial wellbeing. It’s mainly to ensure both individuals and their families are protected if something unexpected happens such as an accident, illness or, worst case scenario, death.

Obviously, you don’t really want to have to think about something bad happening to you or someone you love. Yet if something does happen that is life-changing or life-ending, having life insurance can be a real comfort. It can give you peace of mind so you can focus on what’s important at the time, such as supporting people who need you, making decisions about the future, and sorting out your finances.

Financial independence for your family

Often when an event occurs people have to dip into their savings – if they have any – or ask others for financial help.

For some people, there’s no one to ask so they have to look elsewhere.

Some people even turn to strangers through websites such as GoFundMe, and Facebook. Asking for other people to give financial help is an option for those that are underinsured when someone dies tragically and unexpectedly. They may not have any insurance, or don’t have the right amount of cover, and need to provide for their loved ones.

Depending on the kindness of strangers isn’t ideal and can be prevented. It’s important for many to be proactive about insurance and know their loved ones are secure. It will be a weight off your shoulders and reassuring for your family and friends.

How does life insurance work?

Life insurance is similar to other insurances. When you buy a policy, you enter into an agreement with the insurer that you’ll pay a certain amount for the cover (the ‘premium’), which usually increases with age, and make ongoing premium payments.

The insurer then agrees to pay an amount to you or your beneficiary under certain events. You also agree to specific terms and conditions about what is – and isn’t – covered if you were to have an accident, become ill, or pass away .

The golden rule of life insurance

Tell the truth and understand the fine print.

When you begin a life insurance policy it’s critical you tell the life insurer all the relevant information about your life circumstances. This is known as the duty of disclosure, which is duty outlining what you’re expected to tell the insurance company.

Some of the questions you’ll be asked might seem very personal – or maybe even a minor detail – but they’re all really important, as they help you get the most benefit from your policy. The insurer may ask questions related to your:

  • own medical history
  • family medical history
  • occupation
  • income
  • hobbies

Remember to answer truthfully: don’t try to make yourself sound healthier than you are. Be upfront because the information you provide when taking out cover will be used when determining a valid claim.

Another document people don’t enjoy reading is the Product Disclosure Statement (PDS). Yes, it’s a dry read, because it has to detail what is covered, plus other important information such as waiting periods and exclusions. It’s also important to know what’s not included in your cover so your expectations are met at claim time. If you are unclear about anything in the PDS, speak with the insurer or your financial adviser.

How do I get life insurance?

There are three main ways to buy a policy:

  1. a group policy through your superannuation fund or employer
  2. a retail policy through your financial adviser
  3. buying direct from an insurance company

Costs and inclusions will vary greatly so do your research before you commit. You can start by checking ASIC’s MoneySmart website then discussing your needs with a specialist adviser.

Insurance isn’t one size fits all

Your insurance needs will vary depending on where you are in life, your family situation, and your savings. That’s why seeking advice, however you choose to do that, is critical when assessing what types of benefits you need – and how much you need for each of those.

What’s the best age to get life insurance?

The short answer is to get life insurance well before you think you need it. Most people’s motivation for getting life insurance can be triggered by life events such as buying a house, having your first child, or even getting a pay rise.

While it’s better to start younger, keep in mind that your needs will change as you progress through life, and your financial responsibilities change.

Each insurance company has its own age rules for when you need medicals to be accepted, but generally the younger you are and the healthier you are, the application process is easier.

How do I know how much life insurance is enough?

It’s always better to assess your needs sooner rather than later. If you leave it too long, and you then have a medical event or develop a conditionyou won’t have the cover in place for something that has already occurred.

A simple starting point is to use an online tool such as ASIC’s MoneySmart Life insurance calculator to help you get a general idea of what you need.

Though it’s worth speaking with an expert adviser about your specific needs.

When you have your insurance in place it’s important to check in regularly and make sure your benefits and cover still meet your needs as your life changes.

What is the difference between stepped and level premiums?

Choosing between stepped and level premiums is something you need to decide at the application stage - so it’s important to know the difference, be aware of what you’re signing up for and know what you can afford.

Stepped Premiums are often more popular because premiums start out fairly low when you’re younger, but then increase year on year, so you pay more as you get older.

You need to try and think ahead and make sure you can cater for those rising premiums as you age. The last thing you want is to pay it for 10 or 15 years, then have to cancel it, and end up needing a benefit you don’t have in place.

Level premiums don’t change over time but the upfront cost is higher and can be significantly more expensive than the stepped equivalent when you first take out cover. Level premiums may increase due to inflation but you pay a more consistent amount year on year.

What are the different benefit types?

It can help to think of life insurance as two buckets of money: lump sum or regular payments.

A lump sum is a one-off amount that is paid if you pass away, or are seriously ill or injured. These include:

  • Life insurance (or it might be called death insurance, depending on what term your company uses)
  • TPD, which is paid if you’re unable to work
  • Trauma insurance, also known as critical illness

Lump sum payments are helpful for covering large financial costs such as your mortgage, medical bills and ongoing treatment.

Medicare and your private health insurance might cover some things, but not all the possible costs for some situations. For example, if you have an injury or acquire a disability you might also need to make modifications to your home.

In the other bucket is income protection, a regular payment that covers loss or decrease in income due to an inability to work.

These payments can cover ongoing monthly expenses and help pull you through a difficult period where you’re unable to work. Having that regular money coming in means you don’t have to worry about making ends meet, eating into your savings, or looking for financial help elsewhere.

Insurance inside super vs a tailored policy

If you have super, you probably have some default insurance cover attached to your account – and it’s important to know what sort and how much.

If you’re unsure, contact your super fund.

Be aware that insurance inside super may not offer the same level of cover offered if you speak to a financial adviser who can tailor your policy to your individual circumstances.

What can I do to make the claims process easier?

The best thing you can do to help make the process smoother should you ever need to claim is be clear about what you’re agreeing to when you buy your policy.

At MetLife, we often get calls from people saying, ‘This thing has happened to me. Am I able to make a claim?’ Knowing what you’re entitled to before you lodge a claim makes the process so much easier.

Things you need to know:

Waiting periods. You need to know what the range is to make a claim for certain benefits, e.g. if it’s 30 or 90 days, or two years. This is especially applicable if you have income protection insurance.

What you’ve said in your application for cover. This mainly goes back to complying with your duty of disclosure and understanding the terms and conditions of your policy. Not being clear about what’s happening at application time is often what trips people up, so it’s important to make sure everything is correct.

What can I expect during the claims process?

You just need to fill in a claim form and we’ll aim to tell you everything you need to know upfront but extra requests may come up during the process of assessing the claim

As a life insurer, we’re here to help you.

We have the expertise to guide you through the process to make sure you meet the terms of your policy. Or, if you don’t meet the terms or have a longer waiting period, we’ll let you know the next steps to meeting the requirements and making a claim.

We want to make the process as simple and seamless as possible for you, and make a fair decision as quickly as possible.

What you need to keep in mind when applying for life insurance

  1. When applying for your policy you can choose how much cover you want – so you’ll need to understand the level of cover provided by each policy and any exclusions.
  2. You also need to decide the types of insurance you need: Life, TPD, income protection, and trauma. Do you need all of them? Some but not others? Just one? To help you make these decisions you’ll need to understand the events or illnesses covered by each type of insurance.
  3. Make sure you understand the ongoing cost of the cover for each policy and your budget covers regular payments. For example, if the premiums increase as you age, will you be able to afford the insurance in the long term?
  4. Some benefit amounts will be capped depending on how much you earn.
  5. Find out how your medical history might affect the policy so you understand what you’re covered for – higher amounts of insurance cover will also demand more rigorous medical checks during the application process.
  6. It’s important to let people know you have life insurance, especially anyone you’re nominating as a beneficiary.

Caring for those that matter most to you is a part of being human, find out more about life insurance with MetLife.

While care has been taken in preparing this content, MetLife Insurance Limited (ABN 75 004 274 882, AFSL 238096) (MetLife) does not warrant or represent that the information, opinions or conclusions contained in this information are accurate.  The information provided is general information only and is current as at the time of production. It has been prepared without taking into account your personal objectives, financial situation or needs and you should consider whether it is appropriate for you. It is not intended to be a substitute for professional advice and should not be relied upon as such. MetLife recommends that you obtain independent and specific advice from appropriate professionals before implementing a financial strategy, including reading any relevant product disclosure statements and/or terms and conditions. 

Before deciding whether to acquire, or continuing to hold, any of our products, please read the Product Disclosure Statement and Target Market Determination available at MetLife Protect is issued by MetLife and MetLife Protect Super is issued by Equity Trustees Superannuation Limited
(ABN 50 055 641 757, AFSL 229757) (ETSL).

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