Life Insurance Advice - What You Need and Why It Matters

The insurance most people underestimate

Life insurance is one of those things that feels abstract until you need it. Most people know they probably should have some, fewer know how much they actually need, and a significant number have cover that's either inadequate for their circumstances or structured in a way that doesn't serve them well. A financial adviser who is authorised to advise on life insurance can help you work through what you actually need and why.

The types of personal insurance

Life insurance in Australia covers several distinct products that are often grouped together but work quite differently.

Life cover - sometimes called term life insurance - pays a lump sum to your nominated beneficiaries if you die. The purpose is to replace your income and clear your debts so that people who depend on you financially aren't left in an impossible position. The amount you need depends on your debts, your income, your dependants, and how long they would need support.

Total and permanent disability (TPD) cover pays a lump sum if you become totally and permanently disabled and are unlikely to work again. The definition of "total and permanent disability" varies between policies - some require you to be unable to work in any occupation, others in your own occupation. The latter is more expensive but significantly broader in practice, and the difference matters enormously at claim time.

Income protection insurance replaces a portion of your income - typically up to 70% - if you're unable to work due to illness or injury. Unlike life and TPD cover which pay lump sums, income protection pays a regular benefit for a defined period. The waiting period before benefits start (typically 30, 60 or 90 days) and the benefit period (how long it pays - two years, five years, or to age 65) are the key variables that affect cost and coverage.

Trauma cover - also called critical illness cover - pays a lump sum on diagnosis of specific serious medical conditions such as cancer, heart attack or stroke. It's designed to cover costs that arise from the diagnosis itself - medical treatment, rehabilitation, modifications to your home or vehicle - rather than to replace income.

How much cover do you need

There's no universal answer, which is precisely why personal advice matters here. The right amount of life cover for someone with three young children, a large mortgage and a high income is very different from what someone without dependants in a different financial position needs.

A financial adviser will typically work through a needs analysis that considers your outstanding debts, your income and how long it would need to be replaced, the financial needs of any dependants, any existing cover you have (including through superannuation), and your other assets. From that, they can recommend specific cover amounts rather than generic rules of thumb.

Insurance inside versus outside superannuation

Life and TPD insurance can be held inside your superannuation fund, which means premiums are paid from your super balance rather than from your take-home pay. This can make cover more affordable in the short term since it doesn't affect your cash flow. The tradeoff is that premiums reduce your super balance, which has a compounding effect on your retirement savings over time.

Income protection insurance held inside super has historically offered tax advantages, though the rules have changed over the years and the specifics depend on your circumstances.

Whether to hold insurance inside or outside super - or a combination of both - is one of the areas where a financial adviser's input is most valuable, since the right answer depends on your tax position, cash flow, and retirement savings goals.

Why the fine print matters more than the premium

Insurance is one area where comparing on price alone is genuinely dangerous. Two income protection policies with similar premiums can have significantly different definitions, waiting periods, benefit periods and exclusions. A policy that's cheaper because it defines disability narrowly or excludes certain conditions may be worth far less at claim time than a more expensive policy with broader coverage.

An adviser who specialises in life insurance will compare policies on their terms and conditions, not just their price, and will look at insurer claim acceptance rates and financial strength as part of the assessment.

Who can advise on life insurance

Providing personal advice about life insurance requires an Australian Financial Services licence with specific authorisations covering risk insurance products. Not every financial adviser holds these authorisations - some focus exclusively on investments or superannuation. Before engaging an adviser for insurance advice, confirm they are authorised in this area.

You can check an adviser's authorisations on the ASIC Financial Advisers Register. You can search for a registered financial adviser near you on this directory, which draws directly from the ASIC register and is updated weekly. Advisers are listed across New South Wales, Victoria, Queensland, South Australia, Western Australia and all other states and territories.

Before any insurance advice is given, you should receive a Financial Services Guide disclosing how the adviser is paid and any relationships with insurers that might influence their recommendations. Since the removal of most upfront commissions on life insurance products, advisers can still receive ongoing commissions from insurers - this must be disclosed and is worth asking about directly.