Answers to your biggest life insurance questions
Getting into insurance can feel like stepping into a maze of confusing terms and choices. If you're in your 20s or 30s, you might be asking yourself, "Do I really need this?" or "Where do I even start?" You’re not alone—most people in their early careers are only just beginning to consider insurance as a serious part of their financial game plan. This guide breaks down some of the most common insurance questions, from understanding the basics to deciding what coverage you really need. Let’s make sense of it together, so you can walk away feeling more confident (and a little less lost) about protecting yourself and your future.
1. I’m 21 and have absolutely no knowledge regarding insurance, where do I start?
Starting with insurance at 21 is a smart move! You can start by understanding the basics of the 4 main types of insurance:
Death cover
Death cover provides financial support to your family or dependents in the event of death or diagnosis of a terminal illness. The payment helps your family repay debts, cover funeral expenses and replace lost income.
Total & Permanent Disability (TPD) Cover
If you become totally and permanently disabled and can’t work, TPD cover helps you pay off debts and medical expenses, make modifications to your home, and replace lost income.
Trauma or Critical Illness cover
Trauma insurance is paid if you get a diagnosis of a serious illness like cancer, heart attack or stroke. Put the focus on recovery and getting well – an immediate payment helps meet your financial commitments and medical costs.
Income Protection (or salary continuance)
This insurance protects one of your biggest assets – your income. If you’re unable to work due to illness or injury, you’ll still receive a regular income to meet your financial commitments and living expenses.
All four of these insurances fall under the "life insurance" category because they protect you financially in the event of your death.
In your early 20s, it's a good idea to think about getting some type of personal insurance, like income protection. While you may not have any dependents yet, you do have financial responsibilities like rent and bills, however, your may not have any need for life insurance specifically if you do not have any debt or anyone depending on your financially.
Also keep in mind, give your age 25, your super fund will not automatically set any of this cover up on your behalf until you are age 25 years old, so it's worth considering when reviewing your finances.
If you're feeling a bit lost, reaching out to a financial adviser can provide personalised guidance tailored to your needs and goals. Remember, it's never too early to start securing your financial future!
2. What is personal insurance?
When it comes to insurance, there are generally two main categories: personal insurance and general insurance.
General insurance typically covers tangible assets like cars, homes, and contents. So, if your car gets stolen or your house is damaged in a storm, general insurance is what you'd turn to for protection.
On the other hand, personal insurance falls under the life insurance umbrella. It's all about protecting you and your loved ones financially in case something happens to you.
This includes 4 main policies:
Life or death cover: Provides a lump sum payment to your beneficiaries if you pass away.
Income Protection: Replaces a portion of your income if you're unable to work due to illness or injury.
Total and Permanent Disability (TPD) cover: Pays you a lump sum if you become totally and permanently disabled and can no longer work.
Trauma cover: Pays you a lump sum if you're diagnosed with a specified illness or injury, such as cancer or a heart attack.
Here are a few situations personal insurance can be important:
You're self-employed or own a small business. Because we all know "sick leave" doesn't really exist when you're the boss.
You're employed, but your sick leave might not be enough to cover extended time off work due to injury or illness. Not many people have the luxury of sick leave that lasts longer than a few weeks, let alone all the way through to retirement age.
You've got people (or pets) who rely on you for income. You're their bread and butter, baby. You've got debt. Whether it's a mortgage, a car loan, and a bunch of credit card debt, the bills gotta get paid even if you're not bringing home the bacon.
Your insurance requirements depend on factors like your life stage, family situation, and savings. That's why it's crucial to seek advice and tailor your benefits to match what you truly need. Whether you're a young professional in your 20s, a growing family in your 30s and 40s, or navigating the golden years post-50, your insurance needs evolve. As you grow older, your financial responsibilities may shift. It’s ideal to regularly assess and modify your insurance cover to suit your current needs.
3. Why do I need a specific adviser for just insurance?
The short answer is that you don't have to use an adviser to set up your policy. There are three main options, directly with the insurer (or intermediary), through your super fund, or use a financial adviser.
Direct
Benefit: You go directly to the insurer and cover can be issued fast with limited underwriting options.
Disadvantage: Has the lowest claims acceptance rates of the three, which means the policies are generally much worse (with a few exceptions), often insurers will only accept or decline cover and do not give option to have cover with an exclusion and you are limited to only paying premiums from cash flow and often limited options for cover.
Super fund
Benefit: Fully paid through superannuation, low levels of cover are often quite affordable due to these premiums being tendered.
Disadvantage: Policy can change over time meaning the policy you sign up for and pay premiums for many years can be a very different policy when you come to claim and some benefits are not available (i.e., trauma cover, etc.)
Once you leave the fund, you need to set up new cover making changing super funds overtime more complex and limiting if you have any health concerns throughout your life. Often, insurers and super funds keep the default level of cover extremely cheap while overpricing increased cover.
Superfunds can have limited terms such as if you claim on your Total & Permanent Disability (TPD) cover, then your income protection payments will cease.
Advised (retail policies)
Benefit: Flexible premium structures available such as choosing the insurer best suited for you but having your super fund pay majority (or all) of the premiums. The policies' terms and conditions cannot get worse over time so the policy you have today is what your claim will be assessed on. Often the most affordable option based on the 1700+ clients we’ve helped set up and compare against the market. You have an adviser in your corner at set up to negotiate most appropriate terms and level of cover as well as at claim time to support you through this process.
Disadvantage: The process can take longer to get set up as an adviser will need to go through their process to complete all their research and recommendations (presented within a Statement of Advice). The adviser may charge a fee to complete the initial research and recommendation.
4. Is the insurance in my super fund enough?
Many people rely on the default insurance cover provided to them when they open their super fund. This is what is referred to as ‘default cover’. It’s the type of cover that may automatically come with your account if you are over age 25, have a balance above $6,000 & contributing to the account. Super funds arrange this for their members as a group and in most cases the insurance is provided is not the actual super fund but rather a third-party insurance provider.
Most of us have some form of life risk cover through our superannuation, including Death/TPD and sometimes but not always Income Protection. However, coverage often falls short of what is required given the biggest super fund in Australia, Australian Super provide the maximum default cover of $181,000 of life cover & $61,000 of TPD cover at its peak and for most members you’ll have much less than this.
You can be automatically covered for a small amount without the hassle of going through a lot of processes, so you can relax and enjoy the peace of mind that comes with knowing your loved ones are taken care of financially if something happens to you.
While insurance provided through your superannuation fund offers some level of coverage, it's essential to assess whether it meets your individual needs and circumstances. It's crucial to be aware of the limitations and potential drawbacks of relying solely on superannuation insurance. Policies can be subject to changes without prior notice, and increasing cover or making specific claims may present challenges.
Ultimately, ensuring enough insurance coverage involves careful consideration of various factors, including your financial obligations, dependents, and long-term goals. By staying informed and proactive about your insurance arrangements, you can better safeguard your financial well-being and that of your loved ones, providing invaluable peace of mind for the future.
5. Is life insurance worth it?
Recent studies show that a 70% of Australians recognise the importance of life insurance, yet only about half actually have a policy in place.
If you are working for an income, it means you need money to live. If this is the case, you need to protect this. If you think you do not need to protect your biggest asset, which is your income - why would you bother insuring your car? It’s not worth nearly as much!
So, here's something to think about. Imagine you've got a fancy $5 million Ferrari. You wouldn't skimp on getting insurance for the full amount, would you? So, why on earth wouldn't you insure your income, which could be even MORE valuable? Let's say you're a 30-year-old earning $100,000 a year. If you were unable to ever work again, you’d be losing out on approximately $5.87 million dollars in potential earnings over your working life.
We all know that feeling of being young and invincible. Nothing can touch us because we're invulnerable—and why would we need insurance? We'll never get sick or injured because we’re so busy living our best lives and being young and fabulous. And we're certainly never going to die. Right? Not to mention with an entry-level job paying barely enough money to cover expenses, there's no reason to purchase unnecessary life cover right now.
Wrong.
The truth is, no one is invincible. So while we may not like to think about it, bad things can happen to anyone at any time. And I get why you don't have the headspace right now for your own mortality. But the thing is, life insurance is not just money for when you die.
Money is the last thing you want to worry about when you or someone you love is facing death, or a serious illness or injury. But life insurance is about more than what’s left behind, it's protecting the lifestyle you have now.
6. High income earner for my age (mid 20’s, over 150k) - what insurance should I have?
Some of the biggest life decisions come into play at this age. Maybe it's time to buy your first home or start a family. It's important to take a good look at your finances and consider getting life insurance or reevaluating your current cover. As your financial responsibilities grow, like mortgages, you might need to think about providing for dependents. There are different types of cover to think about, like income protection, total & permanent disability, death cover, or trauma cover.
Here are 4 main types of insurance you may need at this stage:
Income protection cover
This insurance protects one of your biggest assets – your income. If you’re unable to work due to illness or injury, you’ll still receive a regular income to meet your financial commitments and living expenses.
Life or death cover
Death cover provides financial support to your family or dependents in the event of death or diagnosis of a terminal illness. The payment helps your family repay debts, cover funeral expenses and replace lost income.
Total and permanent disablement (TPD) cover
If you become totally and permanently disabled and can’t work, TPD cover helps you pay off debts and medical expenses, make modifications to your home, and replace lost income.
Trauma cover
Trauma insurance is paid if you get a diagnosis of a serious illness like cancer, heart attack or stroke. Put the focus on recovery and getting well – an immediate payment helps meet your financial commitments and medical costs.
In your mid-20s and earning over $150k, you're likely facing significant financial decisions. With these insurance policies in place, you can protect your financial future and provide peace of mind for yourself and your loved ones as you navigate the milestones and responsibilities of adulthood.
7. Where do most people under-insure themselves?
Many Australians are underinsured when it comes to life insurance, especially in areas like Total & Permanent Disability (TPD) and Income Protection cover. Research from Rice Warner shows that while most people have some level of life insurance through their super, it's often insufficient. For instance, average life insurance cover through super might only account for around 30-40% of what is actually needed to support a family in the event of a loss. Additionally, most people overlook Trauma cover, which provides a lump sum if diagnosed with a critical illness like cancer or stroke—yet these illnesses can have significant financial impacts.
8. Is trauma cover worth it? What does it usually cover?
Trauma cover, also known as critical illness insurance, pays a lump sum if you're diagnosed with a serious health condition, such as cancer, heart attack, or stroke. This type of insurance is especially valuable because it allows you to focus on recovery without financial stress. With over 19,000 new cases of breast cancer diagnosed in Australia annually (Breast Cancer Network Australia), trauma cover is a good choice for peace of mind. It’s worth it for those who want the security of financial support during a major health event, especially since critical illness treatments can be costly and may involve taking extended time off work.
9. If your super has insurance, do you need to top up with extra separate life, TPD, etc.?
Insurance provided through superannuation can offer basic cover, but it often falls short in terms of adequate protection. For instance, default super life cover might only account for a fraction of what’s necessary to cover your full financial responsibilities, such as a mortgage or family expenses. A retail cover, purchased outside of super, allows for higher benefits and more flexibility with cover types, like Trauma cover, which is not available through super. Reviewing your needs with a financial adviser can help determine if additional cover would enhance your overall protection.
10. No mortgage, no children – what is the minimum life insurance needed?
If you have no major financial obligations or dependents, your life insurance needs may be minimal. A basic Income Protection policy could be sufficient to maintain your lifestyle and meet everyday expenses if you’re unable to work. However, if you still want to leave a legacy or provide for final expenses (like funeral costs), a modest Life Insurance policy could cover these needs without requiring a large sum insured.