Whole life insurance

Whole life insurance was popular in the '70s and '80s, but it's no longer sold in Australia. A reliable alternative that can provide a safety net for you and your family is term life insurance, which is now used instead of whole life insurance.

The main difference between the two is that whole life insurance used to include an investment portion, which Aussies could withdraw funds from when they retired. When superannuation was made compulsory, there was no longer any need for that investment portion of the policy.

How did whole life insurance work?

Before superannuation was made compulsory, most workers used whole life insurance as a means of providing funds for when they retired, by surrendering their policies so they could access the policy’s cash value. A portion of the premium paid for whole life assurance having been put aside for investment purposes and another to fund the insurance cover.

Cost difference between whole life insurance and term life insurance in Australia

Whole life insurance was considerably more expensive to low cost term insurance, due to the cash value component. However, it is important to note that while the guaranteed earnings you can get with whole life insurance is attractive, often the interest you receive from the investment portion does not pay any more than when you have savings account with a bank.

However, some might still consider whole life to be a worthy investment in Australia, this is because whole life was seen as forced savings and by having a cash value component. Policyholders had the assurance that the life insurance company would have to pay out on whole life insurance one way or another, either in event the life insured’s death or when the policy was surrendered.

What were the advantages and disadvantages of whole life insurance?

Advantages

Disadvantages

Peace of mind of having a lifelong protection. Often used as mandatory savings. Access to cash when your circumstances change. Premium remains the same throughout the life of the policy, regardless of your age. Guaranteed death benefit. Your cash value portion will continue to grow each year with guaranteed interest earnings. Possible dividend earnings, which can be used to increase your cash value, reduce premiums, or withdrawn for other purposes. Possibility to save money to fund your retirement.

Premiums are much higher compared to term life insurance. Not flexible when you need to increase or decrease your cover. The cover amount does not keep up with inflation, which puts your beneficiaries at risk of underinsurance at the time of claim. Poor investment choice as the interest you earn on the cash value may be lesser than other available investment alternatives. They were also very high fee products, paying commissions to the advisers who sold the policies.

What's the difference between whole life and term life insurance?

Similar to whole life insurance, term life cover provides a lump sum death benefit in the event that the policyholder passes away while the policy is still active. There are some notable differences between whole life and term life insurance. These include:

Characteristics	Whole Life Insurance	Term Life Insurance
Cost	More expensive, due to the investment portion of the policy.	More cost-effective.
Length of Cover	Covers you for your entire life, provided that premiums are paid when due.	Remains active for the term selected by policy owner at time of application. This can usually be renewed into the future.
Flexibility	Not so much - you can’t change your cover amount when your needs change.	Very flexible - you can apply to increase your cover when necessary without having to provide further medical evidence.
Inflation	Death benefit stays the same, regardless of the inflation rate, which may result in insufficient cover in the future.	Cover is automatically increased each year to keep up with inflation.
Features and Benefits	The cash value component allows you to borrow funds when required, used as a collateral against a loan, or to pay for your premiums.	Greater range of features and benefits that you can tailor to suit your needs. You can also link term life with other types of life insurance to cover temporary and permanent disability.

How long can term life insurance be taken out for?

You have the power to select a period of cover most suitable for your situation. Applicants usually select terms of 5, 10, 15, 20 and 30 years. Another benefit of term life insurance is that you will continue to be insured in the future as long as you meet the premium payments when due, regardless of any changes to your health, occupation or pastimes.

Get a quote for life insurance

Term life insurance is considered more affordable than whole life insurance, and it's still possible to find a policy with no age limits. The options below also have an expiry age of at least 99 so long as you keep paying your premiums.

Frequently asked questions

• What is a whole of life insurance policy?

  Whole of life insurance, or simply whole life insurance, provided cover for the insured's entire life as long as the premiums were paid. A portion of the premium paid went towards an investment component that could be accessed when required; most had a maturity date when they were accessible.

• Does Australia have whole life insurance?

  No, whole life insurance is no longer available in Australia and may only be held by those who purchased policies before 1992.

• Why is whole life insurance not available in Australia?

  The main difference between whole life and the now more popular term life insurance was that you could invest a portion of it and withdraw funds from this when you retired.

  Once superannuation was made compulsory in 1992 there was no longer any need for that investment portion of the policy, and term life insurance became more popular.

• What is the main disadvantage of whole life insurance?

  One of the main disadvantages of whole life insurance was that premiums were much higher compared to term life insurance.

• Which is better term or whole life insurance?

  Whole life insurance has decreased in popularity and is no longer available in Australia. Term life insurance is now considered a better way to plan for a death benefit payment to help your family cope financially if life does take a turn for the worse.