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How does life insurance work?

A step by step guide to help you through the decision making process.

Firstly, what is life insurance?

“Life insurance” is the general term we give to the range of insurance that looks after you if something unexpected happens to your body or mind.

They are designed to protect your quality of life and the future you’ve planned for your loved ones.

The category of life insurance includes:

  • Life Insurance (sometimes called term life insurance or death cover)
  • Total and Permanent Disability Insurance
  • Critical Illness or Trauma Insurance, and
  • Income Protection Insurance.

Step 1. Which type of insurance do you need? 

Each insurance protects your life in a different way. So the first thing to consider is, which types of insurance do you need to help you live the life you’ve planned?

  • Life Insurance: If you want to protect your family’s future and give them options if you die or are diagnosed with a terminal illness, then that’s Life Insurance.
  • Total and Permanent Disability Insurance: To help you live a better quality of life if you become permanently disabled and can’t work again, then Total and Permanent Disability (TPD) Insurance could be for you.
  • Critical Illness or Trauma Insurance: If you have a serious illness that’s covered by the policy, like certain malignant cancers, then Critical Illness or Trauma Insurance helps support you while you recover.
  • Income Protection Insurance: If you want to have an income to pay your living expenses, if you can’t work as the result of an illness or injury, then that’s what Income Protection Insurance is for.

Step 2. How much do you want to be insured for?

Everyone’s life and budget is different. So considering how much you want to be insured for is an important step.

Life Insurance cover, TPD and Critical Illness or Trauma Insurance are paid as lump sums.

Income Protection Insurance is a monthly payment if you can’t work as a result of injury or illness.

Step 3. If you choose Income Protection Insurance, how long do you want your Waiting and Benefit Periods?

A Waiting Period is the length of time you have to wait after an injury or illness that stops you from working, before you start accruing Income Protection Insurance benefits. It could be 4, 6, 13 or 26 weeks (shorter Waiting Periods generally cost more in premiums).

A Benefit Period is the maximum length of time you could receive your Income Protection Insurance payments. (The longer your Benefit Period the higher your premium).

Step 4. How do you want to structure your policy?

To get the insurance plan that’s right for you, you should also consider how best to structure your policy.

Some of the things to consider are:

Variable Age-Stepped Premiums vs. Variable Premiums

  • Variable Age-Stepped Premiums

Variable Age-Stepped Premiums are calculated based on your age as at each Policy anniversary and the length of time you have had your Policy.

  • Variable Age-Stepped Premiums generally increase as you age. The increases will generally be more significant as you get older.
  • Variable Age-Stepped Premiums can also increase with the length of time you have had your Policy.

This means your premium will generally increase at each Policy anniversary.

  • Variable Premiums

Variable Premiums are based on your age at the Plan start date.

  • Each additional amount of cover will be priced based on your age at the date of increase. This will generally have a higher premium rate than the original cover.
  • Variable Premiums are not fixed. There are a range of reasons why they may increase
  • Variable premiums end at the policy anniversary before age 65 or 70 and will change to the corresponding Variable Age-Stepped premiums from that time until your Policy expiry.

Standalone vs. Bundled Cover

There are a number of different ownership options available depending on the plan you choose. The different types of ownership determine how the premiums are funded and may have different tax implications in respect of the premiums and benefits paid.

The plans structures available are:

  • Standalone: A claim paid under a standalone plan will not reduce the benefit amount of another standalone plan.
  • Attached/Attaching: When a plan is attached to another plan, a claim paid under a plan will reduce the benefit amount on all other plans that it is attached to. All attached plans have the same policy owner(s) and are issued under one policy.

Step 5. Enjoy This Australian Life

The most important question to ask yourself is, how will life insurance help you protect those you love or assist your return to wellness, so you can continue to make the most of This Australian Life?

Source: TAL

Hardik Gupta

Senior Paraplanner

Education: Master of Business Administration (Finance & marketing) & Bachelor of technology (B.tech)

Hardik is a financial professional with an MBA in Finance and extensive expertise in financial planning. As a Senior Paraplanner, he brings a wealth of knowledge and a deep commitment to helping clients achieve their financial goals.

With significant experience in the financial industry, Hardik excels in creating detailed financial plans, performing comprehensive financial analyses, and supporting financial advisors with client portfolio management. His strong background in finance provides him with a robust understanding of market dynamics, investment strategies, and risk management, enabling him to deliver tailored solutions that align with each client’s unique needs.

In his free time, Hardik enjoys spending quality time with his family, biking, playing snooker, and exploring new culinary delights through cooking.

Mayank Manta

Team Leader

Master’s of Commerce & Bachelor of Commerce

Mayank has 8 years experience in the Financial Services industry, with extensive understanding and in-depth knowledge of Financial Planning.

Mayank enjoys systems and numbers, ensuring that every step that needs to be followed gets done and every step that is unnecessary be removed from the process. Being an open, honest and naturally empathetic person, Mayank goes out of his way to ensure that clients, family and friends are happy and content. In his free time, Mayank enjoys spending quality time with my family, creating lasting memories with the people who matter most to him.

Another activity he enjoys is travelling – exploring new places and experiencing different cultures is something that excites him.

Jack Wyer.

Financial Adviser

Bachelor of Business – Major, Financial Planning

Jack Wyer is a Financial Planning Graduate who has recently commenced his Professional Year with Verity Wealth Solutions. With a Bachelor’s Degree in Business, Majoring in Financial Planning, Jack has demonstrated high achievement, receiving merit awards in both 2021 and 2022. Jack’s passion for helping others and his desire to see others succeed financially have been the driving forces behind his chosen career pathway.

Driven by his passion for financial well-being and his innate ability to connect with others, Jack is dedicated on making an impact on the lives of others. Through his expertise, empathy, and commitment, he strives to empower people to achieve their financial goals.

Alongside his financial planning endeavours, Jack finds joy in spending quality time with friends and family and wants to slowly visit new countries along the way. Jack is also an avid Soccer player, actively playing for a local team. When it comes to supporting a team, Jack goes for Tottenham in the English Premier League.

Jack Wyer’s Adviser Profile