logo
HomeLearn
Family on lounge

How life insurance works

Find out more about the different types of life insurance cover and payment options.

Life insurance is designed to protect you financially if something unexpected happens to your health.

It includes a number of different types of insurance that can cover you for different situations.

What type of life insurance is right for you?

Life cover

This type of insurance is also sometimes called death cover. It can cover your family financially in the event of your death, and can pay an early benefit to cover costs if you are diagnosed with a terminal illness.

Customers can select the amount they want to be insured for up to a maximum level, depending on their living costs and expenses such as mortgages and school fees.

Income protection (IP) insurance

IP cover pays a regular benefit that replaces some of your income if you are temporarily unable to work because of sickness or injury.

You can structure this type of insurance in different ways depending on your needs and budget, including shorter or longer waiting periods before your IP benefit is paid, and different lengths of time you want the benefit to be paid.

Total permanent disability (TPD) cover

TPD insurance pays a lump sum if you become permanently disabled as a result of sickness or injury, and are unable to work. As well as providing financial support for you and your family, it can also pay for expenses that health insurance may not cover, such as home modifications.

Trauma insurance

Trauma cover pays a lump sum in the event of a serious illness or life-threatening condition to help in financing your recovery. The payment is commonly used to cover expenses associated with the specific medical event or trauma, such as medical or surgical bills, treatment costs or home alterations.

Business expense cover

This type of insurance covers expenses for small business owners if they become ill and unable to work.

How much does life insurance cost?

The amount of premiums you pay for your life insurance will depend on various factors, such as the level of cover you take out, how old you are, your gender and whether you smoke.

You can find out more in your insurer’s product disclosure statement (PDS), which will be given to you before you take out cover. The PDS would contain information about what your insurance covers, the application process, premium costs and the process for making a claim.

Finding the right level and type of cover for you will depend on your budget and individual circumstances. It’s a good idea to seek out a professional financial adviser to have these discussions.

You should also consider what life insurance you have in your superannuation fund. While every super fund member generally has life insurance, this often only covers part of your insurance needs.

When considering your life insurance needs, you may want to look at the level of debt you have, your stage in life, whether you have people who depend on you financially and what they would need to maintain their lifestyle if something were to happen to you.

How do life insurance premiums work?

Premiums are a regular payment to cover the cost of your insurance policy. There are typically two payment structures you can use to pay for life insurance products.

Stepped premiums

Premiums generally increase due to age and can also increase due to changes in your benefit amount insured - such as through indexation - or a premium rate review.

Where your premium type is specified as ‘stepped premium’, your policy premiums are recalculated each year based on your increase in age and any changing benefit amounts.

Premiums can also vary, up or down, if your insurer reviews their premium rates for a number of reasons - for more information, take a look at the 'Can premium rates change?' section of our PDS.

Level premiums

Premiums will not increase due to age, but can increase due to changes in your benefit amount insured or a premium rate review.

Where your premium type is specified as ‘level premium’, your policy premiums do not increase due to age, however they are likely to be higher at the commencement of your policy compared to a stepped premium type. Level premiums can increase due to increases in your benefit amount insured.

Premiums can also vary, up or down, if your insurer reviews their premium rates for a number of reasons.

The premium is calculated based on your age when level premiums were selected. The premium for other increases in your cover will be based on your age at the time of the increase.

If you have a level premium policy with ClearView and exercise either the Trauma Cover Reinstatement Option or Life Cover Buy Back Benefit, the cost of the reinstated cover is calculated based on your age when level premiums were originally selected for the cover, as well as your age as at any subsequent increases in your benefit amount insured that were made to the cover.

Your level premium will convert to a stepped premium basis on the policy anniversary immediately after you turn age 65 if your policy continues beyond this date. Any taxes or monthly payment loading applicable, and any policy discounts you are eligible for, are then applied.

For more information on how life insurance works and what type of cover is right for you, speak with your financial adviser.

This article is made available by ClearView Life Nominees Pty Ltd, ClearView Life Assurance Limited and ClearView Financial Management Limited (ClearView) and intended to provide general information only. The information has been prepared without taking into account any particular person’s objectives, financial situation or needs. Before acting on such information, you should consider the appropriateness of the information having regard to your personal objectives, financial situation or needs. ClearView recommends that you obtain personal financial advice and read the relevant Product Disclosure Statement before making any decision about a product. This information does not in any way constitute tax or legal advice and before relying on this information, you should seek independent expert advice. While we have taken all care to ensure the information in this article is accurate and reliable, to the extent the law permits we will not assume liability to any person for any error or omission in the article however caused. Call (02) 8095 1494 for editorial enquiries.

How life insurance works - White label version

Important note to advisers

This document is for adviser use only. By downloading or using this document, you acknowledge and agree that you are responsible for its contents and use and you are deemed to have accepted and agreed to the Terms of Use. You are not authorised to modify the content of this document in any way. To the extent that law permits, ClearView, its directors, officers and employees excludes any liability to any person in relation to the document’s use or its content, including any modification, error or omission in the document however caused. This information does not in any way constitute financial, tax, legal, or health advice and is provided on a non-reliance basis. ClearView has not authorized the use of this document for any purpose other than for informational purposes. ClearView does not authorise any use, copying or disclosure of this document in breach of law. ClearView accepts no responsibility for any information published on websites or in documents linked within or referred to within this document. You release and discharge ClearView from any liability arising from or related to this document.

You might also be interested in

How your insurance premiums are calculated
13 May, 2024

How your insurance premiums are calculated

The amount you pay for your life insurance is called a premium. So how do life insurance companies decide the amount they will charge you?Read more
Helping you to recover, at work and at home
17 Oct, 2023

Helping you to recover, at work and at home

If you’re on claim for an illness or injury, you may be eligible to access specialist support from your insurer to help improve your quality of life and, if possible, return to meaningful work.Read more
Why get life insurance?
29 Aug, 2023

Why get life insurance?

Wondering why you might consider taking out life insurance? We look at some of the common reasons for buying it.Read more