Types of Life Insurance, Life Insurance Policies

There are 4 main types of Life Insurance however only term life insurance is widely available in Australia:

Term Life Insurance:

Term Life Insurance provides for life insurance coverage for a specified term of years for a specified premium. The policy does not accumulate cash value, and hence there is no surrender value.

The three key factors to be considered in term life insurance are:

  • Face amount (protection or death benefit)
  • Premium to be paid (cost to the insured)
  • Length of coverage (term)

How Term Life Insurance works:

A policyholder insures his life for a specified term. If he dies before that specified term is up, his estate or named beneficiary receive a payout. If he does not die before the term is up, he receives nothing.

Whole Life Coverage:

Whole life insurance provides for a level premium. The primary advantages of whole life insurance are guaranteed death benefits, guaranteed cash values, fixed and known annual premiums, and mortality and expense charges will not reduce the cash value shown in the policy.

The primary disadvantages of whole life insurance are premium inflexibility, and the internal rate of return in the policy may not be competitive with other savings alternatives.

Premiums are much higher than when compared to short term insurance, but average out over the term of the policy.

Whole life insurance is not available in Australia anymore.

Universal Life Coverage:

Universal Life Insurance is a relatively new insurance product intended to provide permanent insurance coverage with greater flexibility in premium payment.

A universal life policy includes a cash account. Premiums increase the cash account. Interest is paid within the policy (credited) on the account at a rate specified by the company. This rate has a guaranteed minimum but usually is higher than that minimum mortality charges and administrative costs are charged against (reduce) the cash account. The surrender value of the policy is the amount remaining in the cash account less applicable surrender charges, if any.

In order to obtain the maximum life cover, but at a reduced cost it has been shown that this can be achieved by having a policy that combines both the term policy and whole life policy with investments. What happens is that the cash received is invested and used to fund the premium with each year requiring less.

Universal Life Coverage is not available in Australia.


Endowments are policies in which the cash value built up inside the policy is equal to the death benefit at a certain age. The age that this commences is known as the endowment age. Endowments are more expensive than either whole life or universal life because the premium paying period is shortened and the endowment date is earlier.

Endowment Insurance is paid out whether the insured lives or dies after a specific term or age.

Endowments are not available in Australia.

More information about any type of life insurance

At Rate Detective we have secured the services of some of Australia's best life insurance and income protection professionals that are available for a free one-on-one consultation to identify your needs. If you are interested in any type of life insurance, please feel free to make an enquiry and we will put you in touch with one of these professionals. And by applying through Rate Detective you will receive 20% cash rebate for your first year's life insurance premiums!

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Published on August 8-th, 2008 in Life Insurance
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.

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