Death insurance, also called life insurance, pays a lump sum (for example, $1 million) if you pass away during the policy's term. It means your loved ones can meet ongoing expenses, such as the mortgage.
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Finder Score - Life Insurance
Life Insurance is a little complicated and a lot overwhelming. That's why we made the Finder Score, to make it easier to compare Life Insurance products against each other. Our experts analysed over 20 products and gave each one a score between 1 and 10.
But a higher score doesn't always mean a product is better for you. Your situation is unique, so your policy choice will be too. Don't think of Finder Score as the final word, but as a good place to start your life insurance comparison.
You pay the same price as buying directly from the life insurer.
We're not owned by an insurer (unlike other comparison sites).
We've done 100+ hours of policy research to help you understand what you're comparing.
What is death insurance cover?
Death insurance cover, sometimes called life insurance, pays a lump sum to your beneficiary (or beneficiaries) if you pass away.
Death cover can bring peace of mind for you and your family. It can help secure your family's future and ensure they don't need to face the burden of financial uncertainty while simultaneously coping with grief.
Lump sum payments in the event of death or terminal illness
Advance payments to help cover the immediate costs
Financial planning and counselling benefits for your family
Benefit payments available in the event of serious injury or illness
Did you know?
A recent Finder survey revealed that a third (34%) of Australians have no financial safeguards in place for their loved ones if they were to pass away suddenly.
What type of expenses am I covered for?
Some of the expenses that death cover can provide relief for, include:
Rent or mortgage repayments
Children’s education expenses
Daily living expenses and needs, such as food and clothing
Costs to hire housekeeper or nanny
Home maintenance costs
Funeral expenses
Legal expenses
Estate settlement costs
How do I determine my life insurance needs?
There isn't one death cover that is ideal for everyone, which is why it is important to assess and compare different policies to determine which plan would be most suitable for you and your family's needs. Here are a few things to consider when calculating the right amount you need:
You current annual income. Replacing your lost income for the years required
Short-term and long-term debts. This often includes mortgage, credit card debts, personal loan, and car loan
Your immediate expenses. This includes food, clothing and shelter (rent payments, if you don't own your home)
Your children's education expenses. Consider the number of children you have and their respective ages to determine the total amount of expenses
Emergency funds. Work out how much of your expenses such as a funeral arrangement, medical treatments, legal fees and estate settlement costs can be covered by your savings.
You can use a life cover calculator to give you an indication on how much you may need for a death cover. If you want further guidance, an experienced death cover agent can help you in determining an ideal amount that will match your needs situation, as well as providing tailored advice on life policies that suit what you require.
What forms of death cover are available?
The two main types of life insurance are term life insurance and funeral cover, both of which can pay out the full sum insured on death. If you are not eligible to obtain term life insurance (such as due to medical conditions or age), a funeral plan may be a good option.
Generally a more flexible and detailed type of cover than funeral insurance.
Choose from a wider range of benefits and payout conditions that suit your needs.
Often significantly higher maximum benefits than funeral insurance.
Funeral plans
You can take out a specific amount of cover, such as $8,000, which is paid to your beneficiary when you die and can be spent at their discretion.
Can cover administrative costs and mortuary fees, and the funeral itself.
You can generally have two people on the same funeral plan, and should either one pass away, the other can receive the benefits.
Death cover for different life stages
You're relatively young and healthy and your premiums are reasonably low. You might be single, or you might have a family and dependents and can find a level of cover to suit.
As your responsibilities grow you will typically be adjusting your policy and increasing your level of cover later on. Here, additional disability cover with term life insurance can deliver an important extra layer of protection for you in the event of life-changing accident or illness.
You may be married with children and you might be bearing more financial obligations. Investments and debt can also make up a significant portion of your finances which should be considered when comparing life insurance policies or adjusting cover.
If you don't have children already, you may be planning for kids in the future, and their age will determine how far ahead you need to plan for their education expenses.
Disability can be just as significant a concern as death, putting you and your family in a difficult position. With more assets, costs and dependents, as well as your retirement to think about, a comprehensive and versatile life policy can be important in this life stage.
At this point, if you have children, they will likely have moved out and you would be looking towards retirement. Protecting your investments and assets through life insurance may be an important part of retirement planning, and paying off the mortgage and other debt before retirement is also a concern.
Don't underestimate the level of cover you might need in order to provide for a long retirement spanning several decades. Consider your children's circumstances when looking at policies, as well as the likelihood of your partner being able to return to the workforce if something happens.
After retirement, your financial obligations will generally have decreased, but naturally so has your income. You can get cover to help you keep up with your plans, such as travelling, in line with your financial capacity. The assets you've spent a lifetime building may need to be protected, and any financial obligations towards your partner or other dependents.
Estate planning and aged care costs can be worth considering, as are growing medical expenses or costs relating to other health needs. Financial planning might also be important to consider, specifically in the form of estate tax mitigation and budgeting for an extensive retirement with many years ahead.
Finding a policy to match your budget and help maintain your lifestyle while protecting important obligations depends largely on your circumstances, such as your age of retirement and current income from assets.
Can death cover pay for accidents and injuries?
In the event of a fatal accident or injury, death cover of both types, funeral plans and term life insurance, can pay out, while some benefits may also be available for survivable accidents or injuries, although these are generally only available with term life insurance policies.
With funeral plan insurance policies, you may be able to institute a premium pause in the event of financial hardship, while still retaining cover for accidental death. This can let you stop paying premiums for a limited time, such as 3 months, while still knowing that the policy will pay out in the event of an accidental death.
The accidental death benefit available with term life insurance policies can pay out an additional amount should your death be the result of an accident, in order to help compensate for the suddenness of the event and additional costs that may be associated. This may only be available with term life insurance policies.
For severe but survivable accidents you may also be able to link additional forms of cover to your policy including:
Trauma, serious injury or serious illness cover: In the event of specified health events you can get paid lump sum benefits. The specific events covered will vary between policies, but can include cardiac arrest, cancer, loss of limbs, blindness, heart surgery and many others.
Total and permanent disablement or income protection insurance: Should you suffer an accident, injury or illness that leaves you permanently disabled, this type of policy can pay benefits. Depending on the type of cover, disabled might be defined by an inability to work, an inability to perform specific tasks or a percentage measurement of disability based on your physical injuries and loss of function.
If you are in the older age group and have little debt, you may want to consider a funeral plan that will take care of your funeral costs.
Frequently asked questions
This is really up to you to decide based on your individual circumstances and needs. If you're unsure, it's probably a good idea to speak with a financial adviser or planner to figure out if death insurance is worth it for you.
Essentially, yes. Death cover is often interchangeable with life insurance. It offers a lump sum payout to your beneficiaries if you die while your policy's active. However, life insurance is also sometimes used collectively to describe various types of life cover – such as trauma cover and TPD – held within a policy.
Death insurance can be more expensive than other types of life cover, such as funeral insurance. Keep in mind death cover only pays after an insured's death. You wouldn't be able to claim it if you were to become sick or injured, unlike, say, income protection.
James Martin was the insurance editor at Finder. He has written on a range of insurance and finance topics for over 7 years. James often shares his insurance expertise as a media spokesperson and has appeared on Prime 7 News, WIN News, Insurance News, 7NEWS and The Guardian. He holds a Tier 1 General Insurance (General Advice) certification and a Tier 1 Generic Knowledge certification, both of which meet the requirements of ASIC Regulatory Guide 146 (RG146). See full bio
James's expertise
James has written 212 Finder guides across topics including:
Richard Laycock is Finder’s insights editor after spending the last five years writing and editing articles about insurance. His musings can be found across the web including on MoneyMag, Yahoo Finance and Travel Weekly. Richard studied Media at Macquarie University and The Missouri School of Journalism and has a Tier 1 Certification in General Advice for Life Insurance. See full bio
Are you thinking of cancelling your life insurance policy? There are a few things that you need to be aware of before surrendering an important protection cover for you and your loved ones.
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