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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

Tim Bennett's headshot
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

Gary Ross's expertise
Gary Ross has written 659 Finder guides across topics including:
  • Health, home, life, car, pet and travel insurance
  • Managing the cost of living
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