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Term Life Insurance
Term Life Insurance
Written by
Madeline Pettet
Edited by
Ellie Garran
Reviewed by
Adrian BennettEasily compare life insurance quotes
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What is term life insurance and how does it work?
Long story short
Term life insurance pays a lump sum to your beneficiaries if you pass
That’s why it’s sometimes called ‘death cover’ or ‘life cover.’
The factors that determine your policy premiums include your age and health at the time of applying
Your premium may also change as you age and as your cover keeps up with CPI.
Having a rough estimate of the cover amount you need may help you choose a policy
Among other things, you might like to think about any debts or savings you have.
What is term life insurance and how does it work?
Whether you call it ‘term life insurance,’ ‘life cover,’ ‘death cover,’ or simply ‘life insurance,’ the basics of this product don’t change. If you pass away while the policy is active, your nominated beneficiaries will receive a lump sum to use as they see fit. Of course, the general idea is for this money to help your loved ones maintain their current lifestyle as much as possible.
Term life insurance only covers a portion of your life, though – it’s until the policy expires. However, this can be seriously far into your future, like right up until your 99th birthday.
Importantly, term life insurance policies are guaranteed to be renewable. That means, as long as you keep paying your premiums, your insurer can’t cancel your policy or even raise your premiums because of any new medical conditions you may experience.
What does term life insurance cover?
Although we all hope to pass of old age while we’re surrounded by loved ones, term life insurance policies tend to cover numerous causes of death, including accidents, illnesses and diseases, and suicide. Waiting periods may apply for some causes.
A term life insurance policy could also cover you if you’re diagnosed with a terminal illness with limited life expectancy. This could allow you to make a claim early to help prepare your family for life without you.
If you’re not sure what a policy covers, you’ll likely find the answers in the product disclosure statement (PDS).
Why could term life insurance be worthwhile?
Everyone’s life is different, but you might take out term life insurance to reduce financial stress for any dependents, partners, or loved ones if you suddenly passed. The funds could help them repay debts while covering living costs and other necessities. This could make it easier for your loved ones to focus on supporting each other at a difficult time, rather than worrying about money.
Single people or those with no financial dependents may be more interested in other kinds of life insurance, like income protection or total and permanent disability (TPD) insurance. These offer a financial safety net if you’re sick or injured, rather than if you pass away.
Of course, even if you’re young and single, you might want to think about what’s likely in your future, such as having a family. Taking out life insurance when you’re young and generally healthy can mean lower starting premiums.
How is term life insurance different to other types of life insurance?
Although some people might say ‘life insurance’ when they mean term life insurance, there are actually a few different types of life insurance. This table outlines some of the key differences between common kinds of life insurance.
| Type of insurance |  Term life insurance |  Income protection insurance |  Trauma insurance |  Total and permanent disability (TPD) insurance |
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| Who receives any benefit payouts? |
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| What could the money be used for? |
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Note: Every policy is different; what is and isn’t covered and how policies are paid out may vary. Policies may or may not have restrictions on how benefit payouts are used. Refer to your PDS for further information.
Helpful tip
Remember, you aren’t restricted to just one kind of life insurance. If you’d prefer more comprehensive protection, you could have multiple policies or even look for a bundled option.
Adrian Bennett
General Manager for General Insurance
How much does term life insurance cost?
Ultimately, your risk of claiming affects how much your life insurance premiums will cost. Many other types of insurance premiums work this way too.
When you apply for life insurance, you may need to provide information about your:
- gender
- age and stage of life
- general health and medical history, including any pre-existing conditions and your family’s health history
- lifestyle, including if you smoke, how often you drink, and whether you take part in any high-risk sports or hobbies.
These factors help an insurer understand your individual risk to initially quote and then decide your premium.
The premium type you choose (variable age-stepped or variable premiums)1For more information, see Moneysmart – Life cover will also affect how much your policy costs, as will any available discounts.
Over time, your premium might increase. This may be connected to your age or to help ensure your cover is keeping pace with inflation (CPI). Those discounts may also end after the first few years.
How do I choose a term life insurance policy?
It can be overwhelming to compare term life insurance options. But your chosen cover amount might give you a good starting point.
Of course, you’ll need to have an idea of how much cover you’d like – that’s the lump sum payment. You may want to estimate how much your beneficiaries would need and subtract how much they may receive from means beyond your term life insurance policy. The amount you’re left with is what your policy could cover.
| Financial needs | Assets |
 Debts (credit cards, mortgage, car loan) Children (childcare, education) Other living expenses (groceries, rent, transport, electricity, phone, and internet) |  Savings Investments Superannuation Paid leave balance Sellable assets |
Jamie is a single parent of three children aged 15, 13, and 11. They took out term life insurance to help pay off their mortgage and other debts, while also paying for their kids’ education (up to graduating high school) and the family’s living costs.
Their home is valued at $850,000 and Jamie has chipped the mortgage down to $400,000. If Jamie passes, they want the kids to sell the family home – their brother has plenty of room, and the kids love spending time with their cousins.
Last year, Jamie bought a new car with a loan – their old hatchback just couldn’t fit three growing teenagers anymore. They still have $35,000 owing on that.
In a rare moment of quiet, Jamie sat down and calculated each kid’s education costs, including school fees, uniforms, and extracurricular activities. On average, it’s $8,750 annually per kid.
At the same time, Jamie also worked out that the family’s average weekly spend on living costs across the next five years is $2,500.
Jamie has about $219,000 in superannuation – although they’re hoping to grow it a bit more with some extra contributions before retirement. They also have $15,000 across various savings accounts. Unfortunately, while Jamie has plenty of assets with sentimental value, they’re only really worth petty cash on Gumtree and Facebook Marketplace.
If the worst were to happen and Jamie were to pass away tomorrow, they estimate their family would need about $460,000 to pay off debts and minimise any impact to their lives. They know, of course, that their love for their family is priceless, so they’re committed to spending as much quality time with the kids while they can.
This is a hypothetical scenario calculated on 14 April 2025 using Moneysmart’s life insurance calculator, and assumes a 2.5% inflation rate and 3% interest rate. Your cover needs may be different.
Once you have your rough cover figure in mind, you might like to see how policies measure up in other ways, including:
- features, like a small immediate payout for funeral costs
- exclusions, like if certain health conditions aren’t covered
- waiting periods, including for different causes of death
- limits, like if funds received at the diagnosis of a terminal illness come out of the death benefit
- premium, now and in the future.
Frequently asked questions
What do I need to apply for a term life insurance policy?
Insurers may ask different questions as part of the application process. But keep in mind that you might need to provide information about your age, yours and your family’s medical history, your job, and your lifestyle. Depending on the policy, you may also need to undergo a blood test or medical exam.
Remember, too, that you have a duty of disclosure when applying for life insurance. Essentially, this means you need to answer the insurer’s questions truthfully and completely. If you lie or omit information and you’re found out, your policy could be changed or cancelled, or your claims denied.
Can I get term life insurance if I have a pre-existing medical condition?
A pre-existing medical condition may not rule you out of life insurance. When you disclose your condition to a life insurer, they may adapt the policy to exclude the condition or offer cover for it at a higher premium. Alternatively, they may not change the premium or policy at all.
Remember, even if you feel like you have your pre-existing medical condition under control, you have a duty of disclosure to share it when applying for life insurance.
Does term life insurance have waiting periods?
Your term life insurance may come with waiting periods. These might apply to certain causes of death. For instance, you may not be covered for suicide until you’ve held the policy for over a year and therefore completed the waiting period.
Can I get term life insurance as part of my superannuation?
Lots of superannuation funds offer term life insurance with their cover. Some people are happy to stick with this cover. However, this sort of policy may not offer as much cover as you’d like. Which you prefer may depend on your unique circumstances.
Something else to remember is that if you hold life insurance through your super, your premiums come out of your superannuation balance. This may be convenient if you’d rather avoid running the risk of forgetting to pay your premiums. Alternatively, you might prefer your super balance was just used for your retirement.
Similarly, if your term life cover is tied in with your super, you risk it being cancelled if your super fund becomes inactive – for instance, no contributions are made for at least 16 months – or your balance gets too low. Of course, life insurance out of your super can also be cancelled, for instance, if you don’t pay your premiums.
At the end of the day, you might want to weigh up the pros and cons of the different arrangements while thinking about what matters most to you.
How is term life insurance different to whole of life insurance?
The last whole of life insurance policy was sold way back in 1992. Any that are still around have been kept active through policyholders paying regular premiums for more than 30 years.
Whole of life insurance policies were different to term life insurance options as they covered a person’s entire life, rather than a set portion. They were also structured a little differently, including having an investment component that was designed to help fund your retirement in exchange for skipping any death benefits.
These days, compulsory superannuation is there to fund Australians’ retirements. Similarly, term life insurance policies help cover Australians in case they pass away while others are still financially dependent on them.
Where can I find and compare term life insurance?
Term life insurance can give you peace of mind, helping you live in the moment with your loved ones. That’s why we aim to make comparing term life insurance options easier. All you need to do is use our online comparison tool and you’re on your way.
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