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Types of life insurance

Published 9 October 2018

‘Life insurance’ is often used as a broad term to describe a range of insurance types. Find out more about each one as we explain the different types. 

There are five different insurance options sitting under the umbrella term of ‘life insurance’. Life or term insurance provides a lump sum payment for your dependents if you pass away while critical illness or trauma insurance provides cover for serious medical issues, such as cancer or a heart attack. Read on, or click on the links below, to learn more about each one.

  1. Life or term life insurance
  2. Critical illness or trauma insurance
  3. Income-protection insurance
  4. Total and permanent disability insurance
  5. Funeral insurance

1. What is life or term life insurance?

Life or term life insurance products are designed to provide a lump sum payment if you were to pass away or, in some cases, an early payment if you’re diagnosed as terminally ill.

Life insurance is often taken out by those who have financial dependants – such as a partner, children or aged parents – who would be affected if they were no longer around.

To learn more about life insurance, read our article Life insurance FAQs.

2. What is critical illness (trauma) insurance?

Critical illness insurance, also known as trauma insurance, can provide cover for a covered serious medical issue. (Think cancer, a heart attack, a stroke or a severe injury.) Check which particular illnesses an insurer covers, and the definitions of each condition in the policy, as insurers differ in how they classify these conditions.

We all face the possibility of suffering a life-altering medical emergency. People generally take out critical illness insurance to ensure they can concentrate on their recovery, rather than having to worry about their finances, in the event of a health crisis.

This type of cover can either be purchased as a policy on its own, or as an optional benefit in a term life insurance policy.

To learn more about critical illness insurance, read our article Critical illness insurance FAQs.

3. What is income protection insurance?

Income protection insurance (or salary continuance) can be paid if a serious illness or injury prevents you from being able to earn an income for a period of time. Waiting periods apply for when you will need to be off work before you become eligible to receive payment. These often range from 30-90 days. Claimants are generally paid a proportion of their standard income depending on the type of cover (generally no more than 70 per cent of their income) during the period they are unable to work or until the end of their nominated benefit period, whichever comes first. You can usually select a benefit period when you apply for cover from 6 months through to age 65.

Income protection insurance is for those who want the security of knowing they’ll still be able to cover their expenses or maintain their lifestyle following a health-related setback. Many Australians don’t have much of a financial buffer. Those with income protection insurance have the reassurance that they can still have an income stream if an illness or injury prevents them from performing their regular occupational duties.

4. What is total and permanent disability insurance?

Total and permanent disability, often referred to as TPD, insurance can cover you against the possibility of not being able to ever work again due to an injury or illness.

There are two types of TPD insurance. One type will support you if you are unable to work in your own occupation. The other (cheaper) type will only provide a payout if you are unable to work in any occupation you are suited to based on your education, training and experience.

TPD insurance is often purchased as an ‘add on’ to a life insurance policy.

5. What is funeral insurance?

The cost of a standard funeral in Australia ranges from $4,000 to $15,000disclaimer. To assist their bereaved family or friends with these sudden costs, some people take out funeral insurance. This provides a lump sum, which can be used to pay for expenses such as the funeral director’s fee, or other funeral expenses and can generally be paid very soon after receiving the completed claim requirements.

An important consideration when you take out funeral insurance is whether you choose a policy that offers capped or uncapped premiums. Some funeral insurance products allow you to choose from both options, depending on what suits you best.

Capped premiums mean you stop paying your regular insurance premiums when you’ve reached your nominated cover amount, after that your cover continues free, for life. This means you will never pay more in premiums than your cover amount.

Uncapped premiums are where you pay premiums for life (or until an age specified by the insurer). This means, if you take out your policy too early you run the risk of paying more in premiums than your beneficiary or estate would receive in benefit payments.

Want to protect your loved ones from the unexpected?

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This information is current as at date of publication and is subject to change.

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ANZ has entered into a long-term strategic alliance agreement with Zurich Australia Limited (Zurich), ABN 92 000 010 195, AFSL 232510 of 118 Mount Street, North Sydney, NSW 2060, the issuer of Ezicover insurance products. Ezicover is a registered trademark of Zurich. The issuer of Ezicover insurance products is not a Bank. Although ANZ distributes these products, these products are not a deposit or other liability of ANZ or its related group companies. 

Australia and New Zealand Banking Group Limited (ANZ) ABN 11 005 357 522 AFSL 234527 is an authorised deposit taking institution (Bank) under the Banking Act 1959 (Cth). The issuers of these products are not Banks. Although ANZ distributes these products, these products are not a deposit or other liability of ANZ or its related group companies. None of them stands behind or guarantees the issuers or the products. 

This information is of a general nature and has been prepared without taking account of your objectives, financial situation or needs. You should consider whether the information is appropriate for you having regard to your objectives, financial situation and needs.