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term life insurance vs whole life insurance

Term life insurance vs whole life insurance

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Life insurance can be one of the most important things you may wish to consider as part of your financial decision making. Designed to pay a benefit in the event of your death, life insurance cover may help your family cope financially if life took a turn for the worse. The right product for you will depend on a range of factors, and in addition to your age, gender and smoking status your issuer will need to know about your health and lifestyle before they arrange cover for you.

Two common life insurances are term life insurance and whole life insurance. But the difference between the two can be confusing. This is because whole (of) life insurance was regarded as Australia’s most popular life insurance (and investment plan) products until 1991. Then compulsory Australian superannuation was introduced in 1992. From that point, whole life insurance was no longer sold in Australia. It was effectively replaced by term life insurance. The only whole life insurance cover holders are those who purchased prior to 1992.

NobleOak would like to shed light on term life and whole life insurances, some of their benefits and a comparison of some of their features. This following information will explain:

  • what term life insurance is
  • what whole life insurance is
  • some of the main features of each
  • a comparison of some features of each.

What is term life insurance?

Term life insurance – often simply known as “life cover” – protects the life insured for a defined level of cover that is payable in the event of their death, or (with some products, including NobleOak’s life cover) their diagnosis of a terminal illness. Some products will also ensure an advance payment is available immediately to cover funeral costs. Most products are automatically renewed each year (as long as the premiums are paid) with many providing cover through to age 99. In the event of a successful claim, the beneficiaries or insured person’s estate will receive a lump sum cash benefit following the insured person’s death.

What was whole (of) life insurance?

Whole (of) life insurance protected the cover holder for their entire life. As its name suggests, it provided cover for the whole of life, as long as the premiums were paid. In addition to the insurance component, it also had an investment component, called cash, or surrender value. The cash value accrued due to part of the premium being invested in a savings account, and interest accumulated. Typically,  the policy could be ‘surrendered’ for the cash.

Whole (of) life insurance was known as ‘traditional life’ insurance, as it was the most popular form of life insurance from the late 1940s to late 1980s. It is still popular in some countries where superannuation is not available, nor as developed as in Australia

Main features

Term life insurance

  • Flexibility– it can be adjusted to suit your financial needs and changes in life. Under certain circumstances, the cover holder can apply to increase the death benefit when they have greater financial obligations, and they can also decrease as these obligations lessen.
  • Cost-effective – the cover holder only pays for the cost of the insurance component, not any additional cash value as with whole life insurance.
  • Regular reviews – as circumstances in life change, adjustments to the cover holder’s sum insured can generally speaking be made to help ensure they are not over or under insured. Life changes may include marriage, divorce, death of spouse, starting a family, embarking on education fees, or acquiring a new mortgage.

Whole life insurance

  • Guaranteed payout value – traditionally these products gave a guaranteed minimum payout, irrespective of the length of the cover holder’s life.
  • Death benefit guaranteed – except if the policy was surrendered.
  • Fixed premiums – these remained the same for the length of the cover holder’s life. Premiums did not alter with health changes. On the other hand, the cover holder would often overpay during their younger years, then underpay as they got older, and likelihood of death increased.
  • Investment component – an amount of the premium paid would be invested in a savings account, generally by the insurer, and grew at a guaranteed rate (cash value).
  • Include a surrender value – the policy could be terminated, the death benefit ‘surrendered’ and a cash amount collected (although some had surrender charges).

Key comparisons of each

Term life insurance Whole life insurance
Automatically renews each year (as long as premiums are paid) until the cover expiry age. Lasted for the whole of cover holder’s life.
Pays a nominated death benefit to beneficiaries or the estate if the policy holder dies or (with some term life cover) is diagnosed with a terminal illness whilst the policy is active and in force, up to the maximum expiry age. Death benefit guaranteed.
No cash value or savings component. Includes a cash value that could be invested, borrowed against (in some cases), or surrendered.
Often suited to those who want cover while they have financial dependants or commitments. Often suited to those who wanted to leave an inheritance or money towards their funeral.
Premiums are based on the cover holder’s level of cover selected, age, gender, smoking status, health and lifestyle. Premiums did not rise or fall relative to economic or health factors.
Usually attracts lower premium costs. Higher premiums costs.

Remember, considering life insurance may one of the most important financial decisions you may make. To find out more about NobleOak life insurance products or get a quote, call a NobleOak Life Australian based insurance team member on 1300 014 494.

4 Reasons to choose NobleOak

While we are very proud of the Life Insurance cover we provide, a simple belief in 'doing the right thing' sets us apart.

Low insurance premiums

At NobleOak, you buy directly from us,
so you don't pay for
unnecessary overheads.

Fully underwritten insurance

We only offer fully underwritten cover.
This minimises the risk of unforeseen delays
or surprises in the event of a claim.

Simple & straightforward policies

We aim to avoid overly complex terms.
We simply provide a range of great value,
quality cover options.

Award winning life cover

We are the only Life Insurer to win the Canstar Outstanding Value Award for Direct Life Insurance for eight consecutive years from 2016 to 2023.

Help protect your family with
Australia's most awarded direct life insurer
five years running (2019 - 2023)

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