Funeral insurance is the most basic type of life insurance that can be purchased in Australia. As the name suggests, most policies of this type are designed to cover the funeral and other death related expenses of the person who holds the policy. Like other policies offered by insurers, this investment is a way of protecting oneself and one’s family from uncertainty and financial risk. This means that in exchange for paying a monthly or annual fee, known as the premium, the policyholder is guaranteed payment in event of his or her death.
The main advantages of funeral insurance when compared to other policies include low cost premiums and ease of purchase. Unlike other types of policies, insurers generally do not require extensive medical exams when determining eligibility for funeral insurance. The main disadvantage is the limited amount of payment offered to the beneficiaries, which are the surviving members of the insured’s family.
Another type of policy offered in Australia is term life insurance. This is one of the most common policies chosen by those seeking life insurance. Like funeral insurance, this type of policy provides payment to the beneficiaries upon the death of the policyholder. Some policies may offer the option of payment in the event of the insured being diagnosed with a terminal illness. Another option that may be available is the choice for the beneficiaries to receive their compensation either as a lump sum or as a payment issued periodically, known as an annuity. The main advantage of term life insurance is their relatively low cost premiums. The main disadvantage to this type of policy is the fact that they are only valid for a fixed term. This means that if the policyholder does not die within this fixed amount of time, the policy will need to be renegotiated. The availability of the same terms, including the cost of the premium, is not guaranteed.
Two types of policies, whole life insurance and universal life coverage, are not available in Australia. Those seeking the kind of lifelong, extensive, guaranteed coverage provided by those types of polices may wish to examine life annuities instead. Life annuities are offered by some insurers in Australia, although they can be harder to find than the other types of policies. An annuity typically involves a monthly payment to the insurer, which is known as the accumulation phase of the annuity. When the policyholder decides to begin the payout phase, the insurer instead pays the policyholder a monthly amount. Many annuities are designed as retirement plans. However, in the event of the policyholder’s death, the surviving beneficiaries of the policyholder are eligible to receive the payments instead.