What is life cover buy back option insurance?

Buy back option insurance let you reinstate life cover if you've made a claim on a bundled TPD or trauma insurance policy.

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By

Gary Ross Hunter

Edited by

Tim Bennett

Updated

Fact checked
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Key takeaways

  • If you claim on a TPD or trauma policy attached to life cover, your life insurance will be reduced by the amount you've claimed.
  • With a buy back option, you can pay to reinstate your life insurance to its original level of cover.
  • Buy back benefits can usually only occur 12 months after a claim has been made.

How does the life cover buy back option work?

Say you have a bundled insurance policy with life insurance valued at $500,000 and trauma insurance valued at $100,000. If you suffer a health problem that costs the amount of the trauma insurance, your remaining life insurance would total $400,000.

If there was to be a claim for life insurance after this event, the amount paid out at this point would be $400,000. However, if you have a buy back option and 12 months pass, the life insurance would return to $500,000.

What types of buy back options are available?

There are three types of buy back options available.

  • TPD buy back. A TPD buy back is a standard buy back option that allows you to reinstate the full amount of your insurance policy 12 months after a TPD claim. A TPD is total and permanent disablement.
  • Trauma buy back. A trauma buy back works in the same way as a TPD buy back but is for a trauma such as heart attack or illness.
  • Trauma reinstatement. Trauma reinstatement is an additional option that allows multiple claims to be made against a single trauma policy.

When is buy back available?

A life insurance buy back option is usually available to policies that are bundled with either TPD or trauma insurance. This is a common structure for life insurance policies as it lowers the cost of having separate insurances. It does mean however, that if you make a trauma or TPD claim, your life insurance benefit is reduced by the amount of that claim – which is why many insurers offer a buy back option.

Do I need a buy back back option?

Decide whether you want a buy back option by weighing up the pros and cons

Pros

  • It's a safety net for your family in case of illness and death.
  • Without it, the total benefit may not be enough to cover your family's needs.
  • It's sometimes included in policies free of charge.
  • It's usually done without the need for underwriting or increases in premiums.

Cons

  • You sometimes have to pay to have a buy back option included in your cover.
  • Buy back benefits can usually only occur 12 months after a claim has been made.

Is there an additional cost to include a buy back option in my policy?

Some insurers will include a buy back option free of charge in their policy. Other insurers use a buy back as an option to be bundled and in this case it will usually cost an additional amount. The amount varies and will require comparison between insurance companies.

As a standalone option not bundled with insurance, the buy back option will generally cost more, however it offers flexibility when changing plans. As a bundled option, the buy back policy will be included in the insurance premium.

What are some conditions that come with a buy back option?

  • Some insurers will require underwriting and new premiums.
  • A buy back policy will have an expiration date based off of age.
  • A buy back may be partial or full depending on the terms.
  • A repurchased term insurance may not be eligible for indexation increases.
  • A buy back may be dependent on health habits.
  • A buy back may be based off “12 months” or “1 year” which can affect the repayment date.

Still confused? Speak to a broker for more information

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To make sure you get accurate and helpful information, this guide has been edited by Tim Bennett as part of our fact-checking process.
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Editor, Insurance

Gary Ross Hunter was an editor at Finder, specialising in insurance. He’s been writing about life, travel, home, car, pet and health insurance for over 6 years and regularly appears as an insurance expert in publications including The Sydney Morning Herald, The Guardian and news.com.au. Gary holds a Kaplan Tier 2 General Advice General Insurance certification which meets the requirements of ASIC Regulatory Guide 146 (RG146). See full bio

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Gary Ross has written 647 Finder guides across topics including:
  • Health, home, life, car, pet and travel insurance
  • Managing the cost of living
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