I've recently gotten married and am trying to be a responsible adult - so I have been reviewing our Life, TPD, and Income Protection Insurance.
As I discovered, my existing policy was quite poor:
The following is my understanding of how things work. Please note that none of this is advice or recommendations to you.
A lump sum is paid in the event that you die. Remaining family members often use this to pay off debt, move house, etc. This is particularly important if you have dependants.
Most policies expire when you turn 65.
If you have money in superannuation, that can be paid to your family if you die, thus reducing the amount of death insurance cover that you need. But! it is important to have a binding nomination on your superannuation account so that there are no hassles or delays with the money being paid to your family. Oh, and you need to update the binding nomination every 3 years.
TPD is a lump sum payment made to you if you are unable work again due to an injury or illness. People often use this to pay off debts, make modifications to their house (e.g. make it wheelchair friendly), move house, etc
Some policies limit the number of payouts they will give you. E.g. If you get TPD payout, they will no longer do a death payout.
Most people keep the amount of TPD cover the same as their death cover.
Income protection gets paid when you are unable to work. It can be up to 75% of your regular salary.
Waiting periods: say something happens that makes you unable to work. There is usually a gap from when that thing happens to when the insurer will start paying you money. This is called a waiting period and is often 30, 60, or 90 days. Having a longer waiting period significantly reduces premiums, but means you would need to be self-sufficient for longer.
Its important to understand the maximum length of time that the benefit will be paid. Some cheaper policies will only pay a benefit for a few years. If you are unable to work for the rest of your life, you probably need a policy that covers you until you're 65.
TPD and Income Protection are not mutually exclusive (at least on good policies). You can claim the lump sum from TPD as well as get the on-going Income Protection payments.
A tax-free lump sum that is paid to you in the event of a critical illness -- e.g. Heart attack, stroke, cancer, etc.
This insurance is less common than the others
Death insurance and TPD are ideally funded from your superannuation -- you get a 15% discount by doing that.
Income protection can be funded from super, but you get a tax deduction if you fund it yourself.
Note that this does NOT mean you have to use the life insurance provider that your superannuation fund gives you by default.
There are two types of premiums.
Stepped premiums are often cheaper to start with, but increase every year -- sometimes up to 10% per year. This can quickly become un-affordable and, by the time you realise, it can be expensive to find a better plan.
Level premiums are generally more expensive at the start, but do not increase because you get older. They may increase over time due to inflation (which you can opt out of) or changes to the insurer's fees, but these will be smaller increases than stepped premiums.
Unless you explicitly opt-out, your superannuation fund will supply you with a death insurance policy (and maybe TPD and income protection)
Generally speaking, these policies are overpriced and under-featured. Its better to find something that fits your circumstances.
As inflation occurs over time, the amounts that you are insured for are less valuable. Worth considering when you decide how much insurance to get.
Since you're investing for the long term, you want your insurance company to still be in business when you're old
There are policies out there that bundle multiple people into one policy, but they are fairly rare. For me, there was no value for money.
If you buy a house, have children, etc, you should review your insurance cover.
Consider getting a new, additional policy to cater for your new circumstances instead of throwing away the old one and paying higher rates.
There are a lot of complicated details and I found that it was difficult to compare options. I turned to a broker, who had done comparisons and ratings across a wide range of products and was able to educate me on a lot of important thing.
Brokers are generally paid a trailing commission by the insurance company, so you don't pay them directly (just indirectly through your premiums). The commission life insurance brokers receive is the same for all products, so I think that removes the potential for bias in their recommendations. I'm guessing that the higher the amounts in the policy, the larger their commission will be -- so check that the amounts they suggest are reasonable and appropriate for you.