How to compare life insurance policies: price vs value

Revealed: the key to comparing life insurance policies to make sure you get what you pay for.

Frank Dyer, Lifebroker's Head of Business Management, walks us through what to look for - and what to look out for - hint: it's not just price. It can feel as though you need a telescope and a Sherpa to find the right life insurance policy. With so many to sift through it's tempting to just go with the cheapest option, but to ensure your loved ones won't be left in need, it's imperative you do your research before making a decision.

We asked Frank for guidance on how to cut through the confusion and avoid pitfalls when comparing insurance policies on price.

What’s important to keep in mind when comparing life insurance? Are cheap life insurance policies still beneficial?

“An important thing to consider is exclusions – medical conditions or activities that aren’t covered. Sometimes the most affordable policy will still include the same benefits as the most expensive. Make sure you read the fine print on the different options and be on the lookout for any lurking exclusions,” Frank says. “The Product Disclosure Statements can be helpful here. Lifebroker's comparison tool also provides a quick reference table that includes price, features, benefits, inclusions – and exclusions. Understanding a policy’s exclusions will go a long way to minimising surprises at claim time."

Many people start looking at life insurance when they have major life changing events such as buying a home, having a child or getting a new job. Is it cheaper in the long run to take out a policy when I'm younger or hold off until middle age?

"Taking out a life insurance policy when you’re younger can mean your premiums will be lower, particularly if you’re looking at level premiums,” Frank advises. “The healthier you are when you first take out life insurance can also help avoid any unexpected exclusions, loadings or potential decline of cover.”

What is the difference between Variable and Variable Age-stepped premiums?

Variable Age-stepped Premium (previously known as “Stepped Premiums”)

Choosing a Variable Age-stepped premium structure means that your premiums will be calculated based on your age each year and will generally increase each year on the policy anniversary. Variable age stepped premiums typically start off cheaper than variable premiums, however, increases are typically more significant as you get older.

Variable Premium (previously known as “Level Premiums”)

Choosing a Variable Premium structure means that the premium is based on your age when you commence your policy, with the insurer attempting to spread the cost of cover over a number of years. Variable premiums will generally be more expensive than variable age stepped premiums initially, however, may be lower at some point in the future depending on how long you hold the policy.

Most variable premiums will revert to a variable age stepped premium at your policy anniversary around the ages of 65 or 70, depending on the insurer.

Neither Variable Age Stepped or Variable premium structures are fixed and the cost of cover will increase overtime if the benefit amount increases, the insurer updates their premium rates, discounts no longer apply, or in response to government charges. Should your benefit amount increase e.g. due to inflation protection or upon your request to increase the benefit amount, the cost of cover will be priced based on your age at the date of increase. The increased benefit amount will generally be subject to a higher premium rate than the original cover.

To learn more about the different premium structures you can refer to the Council of Australian Life Insurers (CALI) Life insurance premium fact sheet. The options available vary between insurers, so it’s important to also read the product disclosure statement for details on each insurers offering.

Do I need all the bells and whistles?

“There are insurance policies available, such as Total and Permanent Disability (TPD) and Trauma insurance” Frank explains. “TPD insurance covers you if you ever become totally and permanently disabled whereas Trauma insurance (also known as Critical Illness Insurance) pays you a lump sum if you’re diagnosed with any of the critical illnesses listed on the policy such as heart disease or cancer. These policies increase premiums but also add value. Make sure you read the inclusions and exclusions carefully as you review quotes. In some cases for a little bit extra a month you can receive additional protection or features, in other cases the most affordable policy may actually include more benefits than a more expensive option."

Is it cheaper if I lead a healthy lifestyle?

"Some life insurers have started offering discounts to clients based on their efforts to improve their health. For example, AIA Australia have launched AIA Vitality, a program that offers rewards and discounts on premiums as well as travel, shopping and entertainment to members who set and achieve health goals. Another example is TAL’s Health Sense program, which offers new clients up to 15% discount on life insurance and/or TPD insurance for the life of a policy, if at the time of application, their Body Mass Index (BMI) falls within the Health Sense range.”

Can I change my policy if my needs or circumstances change?

"Cover reductions, increases and changes are available based on eligibility. Insurers understand circumstances change. In some instances you may be asked for further information such as your current medical history to determine if your insurer will accept an increase or additional cover. Changes in cover amounts will usually result in an impact to your premium. There may also be waiting periods or exclusions to the additional cover amounts."

This website offers General Advice only and does not consider your personal objectives, financial situation or needs. Before you purchase a product, it is important to read the relevant Product Disclosure Statements to consider if the product is appropriate for you. Lifebroker Pty Ltd, ACN 115 153 243 (the authorising licensee AFSL 400209) or any related companies will not be held responsible for the merits of this advice to your circumstances. Learn more with the Lifebroker Financial Services Guide, Terms of use, Privacy Policy and guide to its participating insurers.