When should you get life insurance?

Published April 2024 | 5 min read
Expert contributor Eoin Reville, Acting General Manager, Life at HCF
Words by Trudie McConnochie

Major life changes like buying a house or retiring are important times to review your life insurance to make sure you and your family are protected if the unexpected happens.

When you go through a major life change like getting married, buying a home, having kids or retiring, life insurance probably isn’t the first thing that comes to mind. But a change in circumstances is a good time to be thinking about either taking out life insurance or reviewing your existing policy to make sure you and your loved ones are covered if the unexpected happens.

According to a 2022 Financial Services Council report, around 1 million Aussies are underinsured for death or total permanent disability (when you become totally and permanently disabled as a result of illness or injury), and around 3.4 million are underinsured for income protection (meaning they don’t have enough cover or they don’t have any cover at all). Deloitte estimates Australians could have claimed $25 billion for life insurance events in 2022, if they were properly insured.

Eoin Reville, General Manager, Life at HCF says too many people take a set-and-forget approach to their life cover.

"The major mistake people make around life insurance is they believe that their coverage through superannuation will be enough to cover them when the worst happens," he says. "You really need to be reviewing your insurance at various stages through your life, as the cover you need will change as your economic situation changes."

To help you decide if you need life insurance, or whether you should think about updating your existing policy, it’s important to first understand what life insurance covers.

What is life insurance?

Life insurance refers to a group of policies that can help support you and your loved ones financially in the event of an unexpected illness or accident that impacts your ability to provide. Essentially, it’s there to cover a lot of the things your private health insurance policy doesn’t – like loss of income, or the costs of recovering from an accident or trauma.

While many health funds don’t offer life insurance cover, HCF has a unique range of policies called Recover Cover to support you if an unexpected event adversely affects your ability to work or carry out normal activities. HCF’s recovery and life insurance policies were created to complement our private health cover by supporting members with costs beyond hospital such as rehabilitation and recovery costs. For example, after being diagnosed with cancer, café owner Vivian got a fast lump sum payment with HCF’s Cash Back Cover, which helped her pay for treatment costs and recovery – a huge relief, she says, given she was unable to work during her chemo treatments.

"These accident and illness products pay cash direct to the member for expenses that health insurance doesn’t cover, like taxis, cleaners, meal deliveries and medical gaps," says Eoin.

What are the different types of life insurance policies?

There are several types of policies that come under the life insurance umbrella:

• Life insurance is cover that helps to look after your loved ones in the event of your death or terminal illness diagnosis by paying out a lump sum of money to the people you nominate as beneficiaries. HCF Life Protect Insurance is a good example of this type of policy.
• Income protection is a policy that pays part of your lost income if you can’t work due to an illness or injury. HCF Income Protect is a good example of this type of policy, helping pay for bills and household expenses while you recover.
• Critical illness cover is also known as ‘trauma insurance’ and is designed to help support you financially if you’re diagnosed with a serious illness. HCF’s Critical Illness Cover pays out a fast cash benefit to help cover household, medical and rehabilitation costs after a critical illness like cancer or a heart attack.
• Accident protection is similar to critical illness cover but pays out a cash benefit if you experience an accident or injury. HCF Recover Cover accident protection policies include Personal Accident Insurance, Kids’ Accident Cover and Cash Back Cover.
• TPD (total and permanent disability) is designed to pay out a lump sum if you become totally and permanently disabled because of illness or injury.

Do I need life insurance?

Like any form of insurance, the best time to take out life cover is before you need it. Since you don’t know when that will be, it’s recommended you get life insurance earlier in life. The older you get, the greater the chance you’ll have developed pre-existing conditions that might affect the level of cover you can get.

When choosing a life insurance policy, Eoin suggests being clear about the type of cover you want. Make life insurance comparisons by researching what different insurers offer (including your super fund), and check the government’s Moneysmart calculator to work out the right level of cover. Make sure you factor in any waiting periods, pre-existing conditions and policy limits like age and life expectancy.

When should I take out life insurance?

Any change in your circumstances can affect the type of life insurance policy and how much coverage you might need to support your loved ones. The following life events are all good prompts to reassess your life insurance needs:

• Buying a home: purchasing property is a long-term financial commitment. Life insurance can help you and your loved ones cover the mortgage repayments if you find yourself unable to work due to an accident or illness.
• Getting married: for most people, getting married means sharing finances. But if the unexpected happens to you or your partner, would the other person be able to manage financially on their own? Life insurance can help to cover immediate expenses and provide financial stability and support in the long term. Likewise, the end of a relationship should also trigger a reassessment of your life insurance needs. You may want to remove your former spouse as a beneficiary or review your level of cover for any dependents.
• Having kids: if you’re the primary earner for your household, life insurance and income protection are important to make sure your loved ones can cover expenses like school fees in the event you’re no longer able to work. But stay-at-home parents should also consider cover – if you’re no longer able to look after your kids, a life insurance policy can help to cover the costs of care.
• Starting a new job: a new job often means a change in salary and it’s important to have the right level of cover to protect it. Transitioning out of work and into retirement is another important prompt to review your life insurance needs.
• Accident or illness hits close to home: when illness or injury affects a friend or relative, it’s human nature to consider “what if that happened to me?”. None of us likes to think about the prospect of death or a serious illness, but knowing your loved ones would be taken care of may offer some peace of mind.

"When you purchase your first property and get a mortgage is probably the first key change," Eoin says. "Starting a family and having a partner or children who depend on your income is another."

"It’s also important to review your life insurance as your family grows and expenses increase – like school fees. As you head into the latter part of your working life, it’s time to review again – the cost of insurance generally increases as you age, and you don’t want to be paying for cover you don’t need."

Major milestone or not, it’s a good idea to reassess your coverage every 12 months to ensure you have the right level of coverage for your changing needs.

Is life insurance tax deductible?

According to the Australian Tax Office (ATO), life insurance is not tax deductible. However, you may be able to claim a tax deduction on your income protection insurance if your policy isn’t through your super fund and doesn’t pay a lump sum in compensation.

The rules around tax and life insurance can be complicated, so make sure you get advice from the ATO and a financial advisor who knows your circumstances.

What if I’m declined life insurance?

If you’ve been denied a life insurance policy, try a different insurer, advises Eoin. "Insurers have different risk appetites, so will cover certain people under certain circumstances," he explains.

"Just because you are declined by one insurer, it doesn't mean another insurer won’t be prepared to offer you a policy. So if you need assistance contact a financial advisor."

This is also another opportunity to reassess what you require from a life insurance policy. Every year, it’s important to ensure that you have the right level of coverage for your evolving needs.