We know life insurance can be overwhelming, there's so many different options that can have a material impact on your premium, so we're here to make it as easy as possible for you.
The different options include, how much cover to take out, level versus stepped cover, and whether to add trauma cover (accelerated or stand alone trauma cover).
How much life cover to take out
The amount of life cover you take out will largely determine the premium you pay. The more cover you take out, the more it will cost in premiums.
To help calculate your life cover needs, you should consider:
- Your current debt (such as mortgage, credit cards, personal loans)
- Your annual income and how many years you'd like your family to have that ‘ongoing income' if you passed away
- Your savings/assets
- Your partners' savings and/or income
- Any other costs you'd like to cover such as your children's education costs or your funeral costs.
To learn more about the amount of life cover you need, read our article How much life insurance do you need?
Level or Stepped cover?
Stepped premiums (the most common pricing structure), sometimes known as Rate for Age premiums, are recalculated annually and increase as you get older, but usually start cheaper. Level or Fixed premiums generally start higher than Stepped premiums but are considerably lower in comparison over time.
Stepped cover premiums will rise each year as you get older. This is to cover the increased risk of you claiming on your policy. An inflation adjustment will also be applied to your cover, meaning your cover will increase in value.
Level cover comes in four different ‘term length' options: 10 years, until age 65, 70 or 80. Some insurers may also allow you to define your own term length. If you keep the policy for longer than the term length, you will switch to Stepped cover.
Have a look at our article What is level life insurance and how does it work? for more information.
Whether or not to add Trauma cover
Trauma cover pays a lump sum if you suffer a major health problem covered by the policy (like serious cancer, heart attack, or stroke). This helps you recover financially from the impact of illness.
By adding trauma cover to your life insurance, you gain more cover, but with that comes higher premiums.
Read our article What is trauma insurance cover? to help you decide whether or not you'd like to add trauma cover to your life insurance.
Whether to take out accelerated or stand alone Trauma cover
Accelerated Trauma cover is a partial payment of your Life Cover benefit (if you have $500,000 Life Cover and $100,000 Trauma Cover and make a Trauma claim, your Life Cover will reduce to $400,000). The alternative type of Trauma cover is Standalone, and does not affect your Life Cover when you claim it.
Choosing between accelerated and standalone trauma cover impacts the premium you pay. Accelerated trauma cover may reduce your overall life cover compared to stand alone trauma cover, but your premiums will be cheaper.