Tips for First-Time Life Insurance Policy Buyers

Choosing an insurance policy that’s right for you 

Single with no dependants? You might consider taking out policies like trauma insurance, income protection insurance or total and permanent disability (TPD) insurance in case of illness or injury, so you’re covered juuuust in case. If you’re reading this, like, huh?! No worries – get stuck into our simple insurance explainer here.

If you have a partner or dependents, it might be appropriate to consider organising a life insurance policy that will help cover living costs and take care of any debt in case the unthinkable happens.

Double-check that you’re not over or under-insured

Turns out you can have too much or too little of something. Yep, it’s a fine line, but when it’s all written down on paper, it’s easy to see what’s essential and what’s a 1 in 10 million scenario. (i.e, it’s probably not gonna happen, so save your money). 

Figure out how your life insurance premium is calculated

Ah, life insurance premiums. There are two main factors that impact them – your age and your health. Due to, well, ageing, it’s only practical that the younger and healthier you are, the cheaper your life insurance will be. Lower risk of death = lower premiums. Makes sense. Age-related risks can also differ for cis men and women, which is why premiums for people of the same age may look different.

Sometimes, your premium will be locked and loaded for the entire length of your policy. If you have a term life plan that you later want to renew or convert into whole life, your premium will be re-calculated based on your new age. Alternatively, premiums might increase as you age.

If you have a pre-existing condition, your claim to a conventional life insurance policy may be rejected, but that doesn’t necessarily mean that coverage is entirely off the table. There are a couple of options you can still consider, i.e guaranteed life insurance, which is a whole life insurance policy that allows you to skip all those health questions or you may be able to undergo a medical exam.

Choose between level premiums and stepped premiums

You can generally choose to pay for life cover with either:

Stepped premiums

These are recalculated at each policy renewal. They usually increase each year based on the higher chance of a claim as you age. 

Level premiums

These premiums are higher at the start of the policy. The changes to fees aren't based on age, so increases are more gradual.

While stepped premiums are usually lower at the start, level premiums can be considered a more cost-effective option if you have the insurance for longer. So for example, if coverage is only required for a short time frame, a stepped premium may be better suited to you. 

Still confused? The simplest tip is to think about selecting the one that makes more sense for you and your lifestyle.

Consider insuring your health

While many people recognise the importance of a life insurance policy (ahem, we’re looking at you… ) – the need for other policies, such as disability and critical illness insurance, is often left out of the conversation.

Consider these:

Disability insurance

This type of coverage provides income replacement in case you’re unable to work (due to an accident or unexpected illness) for a specific period. 

Critical illness insurance

This type of coverage provides a lump-sum payment in the event you develop a life-altering disease (e.g. cancer or a stroke), that will be specified in your policy.

Be honest about pre-existing health conditions

You don’t want a little white lie to bite you down the line. Although most insurers will cover applicants for pre-existing conditions, high-risk activities or jobs, some insurers may list these circumstances as specific exclusions on their policies. Make sure you read the fine print (outlined in your PDS) so you’re aware of your respective cover’s exclusions and restrictions.

If you have a pre-existing medical condition (e.g. asthma, depression or a heart condition), it’s a good idea to disclose any information about your medical circumstances to your insurer. It’s important to be honest when disclosing your pre-existing conditions, as it may disrupt your policy come claim time.

Shop around for the best policy for you. 

Sure, impulsive purchases happen, but most of us try not to splash our hard-earned cash every day of the week. Emphasis on try. So the best advice here is to take time on this one, do your research, ask lots of questions and compare policies. Just like those wireless headphones, camping gear or the latest kicks, shopping around for the best deal may take a bit more time, but it’ll be worth it for you, your family and your wallet in the long term.

• Further reading: 3 Ways to Buy Life Insurance in Australia

Wrap up

While end-of-life planning can feel overwhelming and confusing, it doesn’t have to be a difficult process. For more information, read our guide to all things Life Insurance here.

With so many insurers in the market, it’s important to take your time to ensure you have chosen the best policy for you and your family. It might also be a good time to consider writing or updating your written Will, if you haven't already.

Disclaimer: The content of this blog is intended to provide a general guide to the subject matter. This blog should not be relied upon as legal, financial, accounting or tax advice.