What is life insurance?

Life insurance can help protect your family if you die while being covered. It’s a great way to financially protect those you love in the event of your death.

Frequently asked questions

Life insurance pays out a sum of money upon the death of the insured person. It can be useful for people who have relatives that rely on their income, as it offers financial protection. Beneficiaries of life insurance policies can use the money to cover household bills, childcare costs, mortgage payments, or to cover the funeral costs of the insured person. Life insurance may also be left as a gift.

If you stop paying life insurance premiums, your policy will lapse, which means the insurance is no longer valid and will no longer pay a death benefit. Generally, your policy will only lapse after a grace period, and many insurers allow customers to reinstate their policy for a short amount of time after the lapse.

Term life insurance is designed to pay out a lump sum if you die within a fixed period. There are three main types of life insurance:

  • Level term life insurance:  The amount of coverage stays the same across the term of the policy
  •  Decreasing term life insurance: Often used to cover a debt that reduces over time, such as a repayment mortgage. The amount of cover decreases over the term of the policy
  • Increasing term life insurance: Designed to keep up with inflation so beneficiaries can make the most of your payment. As such, the cover increases over the term of the policy.

It is possible to sell a term life insurance policy for cash, if it is convertible into permanent life insurance. In most cases, you can sell for an amount that is lower than its death benefit but higher than the cash surrender value. This is known as a ‘viatical settlement’ or ‘life settlement’. A provider will make an offer based on personal circumstances such as your age and health. The payout will also vary depending on the type of insurance, premiums and death benefit.

Generally, you should consult a financial adviser before buying life insurance if you think you might want to ‘cash out’ the policy in future.

If you outlive the length of your term life insurance policy, you won't get any money back. However, there are other life insurance options available that will only pay out when you pass away.

Life insurance pays out a sum of money upon the death of the insured person. It can be useful for people who have relatives that rely on their income, as it offers financial protection. Beneficiaries of life insurance policies can use the money to cover household bills, childcare costs, mortgage payments, or to cover the funeral costs of the insured person. Life insurance may also be left as a gift.

If you stop paying life insurance premiums, your policy will lapse, which means the insurance is no longer valid and will no longer pay a death benefit. Generally, your policy will only lapse after a grace period, and many insurers allow customers to reinstate their policy for a short amount of time after the lapse.

Term life insurance is designed to pay out a lump sum if you die within a fixed period. There are three main types of life insurance:

  • Level term life insurance:  The amount of coverage stays the same across the term of the policy
  •  Decreasing term life insurance: Often used to cover a debt that reduces over time, such as a repayment mortgage. The amount of cover decreases over the term of the policy
  • Increasing term life insurance: Designed to keep up with inflation so beneficiaries can make the most of your payment. As such, the cover increases over the term of the policy.

It is possible to sell a term life insurance policy for cash, if it is convertible into permanent life insurance. In most cases, you can sell for an amount that is lower than its death benefit but higher than the cash surrender value. This is known as a ‘viatical settlement’ or ‘life settlement’. A provider will make an offer based on personal circumstances such as your age and health. The payout will also vary depending on the type of insurance, premiums and death benefit.

Generally, you should consult a financial adviser before buying life insurance if you think you might want to ‘cash out’ the policy in future.

If you outlive the length of your term life insurance policy, you won't get any money back. However, there are other life insurance options available that will only pay out when you pass away.

More on what is life insurance?