Life insurance in Australia pays a lump sum to your beneficiaries (or estate) if you die. It is the foundational personal insurance product for anyone with dependants, a mortgage, or financial obligations that would be left to others if they were gone. Despite this, around 95% of Australians with dependants are underinsured for life risk, according to Rice Warner research cited by the Financial Services Council. This article covers how life insurance works, how to calculate how much you need, what it actually costs, and the inside-super vs outside-super decision.
Life insurance (also called term life insurance in Australia, to distinguish it from whole-of-life products) pays a tax-free lump sum on death, or on diagnosis of a terminal illness with a life expectancy of less than 12–24 months (depending on the policy). The benefit is paid to the nominated beneficiaries — typically a spouse, children, or estate.
Life insurance does not cover total and permanent disability (that is TPD insurance), temporary disability (that is income protection), or critical illness (that is trauma or crisis insurance). These are separate products that can be held alongside life insurance. Most people with dependants need life insurance at a minimum; whether additional products are warranted depends on circumstances.
The standard approach is to calculate the financial obligations and income replacement needs your family would face if you were gone. The key components are:
Debt repayment: The outstanding balance of any debts your estate or family would need to clear — most importantly your home loan, but also car loans, personal loans, and credit card balances. Most Australians structure their life insurance to at least cover the mortgage.
Income replacement: An amount sufficient to replace your income for a period long enough for dependants to adapt. A common approach is to multiply your annual income by the number of years until your youngest child is financially independent, or until your partner reaches retirement age. At a 5% drawdown rate, $1,000,000 in life insurance provides approximately $50,000 per year in income indefinitely.
Immediate expenses: Funeral costs (typically $8,000–$20,000), estate administration, and a buffer for immediate cash needs.
A household with a $750,000 mortgage, two children aged 3 and 6, and a primary income earner on $120,000 per year might calculate: $750,000 (mortgage) + $120,000 x 15 years (income to youngest child finishing university at age 21) + $30,000 (immediate expenses) = $2,580,000 in required cover. That is a large number — but life insurance at that level for a healthy 35-year-old costs well under $2,000 per year.
Life insurance premiums in Australia are based primarily on age, gender, sum insured, smoker status, and health. Premiums increase with age. A broad indication of annual premiums for a healthy non-smoker at stepped (annually renewable) rates:
| Age | Sum insured $500k | Sum insured $1M | Sum insured $2M |
|---|---|---|---|
| 30 (male) | ~$300–$450/yr | ~$500–$800/yr | ~$900–$1,500/yr |
| 35 (male) | ~$400–$600/yr | ~$700–$1,100/yr | ~$1,300–$2,000/yr |
| 40 (male) | ~$600–$900/yr | ~$1,100–$1,700/yr | ~$2,100–$3,200/yr |
| 35 (female) | ~$300–$450/yr | ~$550–$850/yr | ~$1,000–$1,600/yr |
These are indicative figures only — actual premiums vary by insurer, health underwriting, and occupation loading. Source: indicative ranges from publicly available insurer quotes, June 2026. Smokers pay approximately 2–3x the non-smoker rate. Medical conditions may attract premium loadings or exclusions.
Australian life insurance policies are offered with either stepped or level premiums. Stepped premiums are recalculated each year based on your current age, meaning they start lower but increase annually. Level premiums are set based on your age at policy inception and remain constant (in real terms) for the life of the policy. Stepped premiums are cheaper initially and appropriate if you expect your cover need to reduce over time (as debts are paid off and children become independent). Level premiums cost more initially but can be significantly cheaper over a 20-30 year policy horizon for large sums insured.
Most Australians hold default group life insurance through their superannuation fund — premiums are deducted from their super balance rather than out of pocket. This has several implications:
The advantages of holding life insurance through super: premiums are paid from pre-tax super contributions, effectively giving a tax benefit; the cost is invisible (deducted from super rather than a bank account); group rates through large funds are typically cheaper than retail individual policies for standard cover amounts.
The disadvantages: default super cover amounts are usually insufficient — group cover is typically $300,000–$500,000, well below what most families with mortgages need; claims paid to dependants via super are subject to the superannuation trust deed and death benefit rules, which can affect timing and tax treatment for non-dependants (adult children who are not financially dependent pay tax on the benefit); and cover ceases if your super account becomes inactive (no contributions for 16 months).
Most people with significant dependants need both: a base level inside super (cost-effective for standard amounts) and a retail policy outside super to bridge the gap to their actual required cover. The inside-super benefit can be directed to a superannuation-nominated beneficiary or estate; the outside-super policy benefit is paid directly to the nominated beneficiary.
Life insurance in Australia is underwritten individually for retail policies — you answer health questions and the insurer may accept the application on standard terms, apply a premium loading, exclude a specific condition, or decline. For group insurance through super, underwriting is typically simplified or absent, meaning existing conditions are often covered under the group policy up to the standard cover amount. This is one reason default super insurance has value even for people with health conditions — but coverage above the default group amount requires individual underwriting.
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