Life insurance probably isn’t at the top of your to-do list in your 20s or early 30s. When you’re healthy, focusing on your career, and making plans for the future, it can feel unnecessary. But that’s exactly why it makes sense to consider it now. Insurers calculate premiums based on age and health, which means younger Australians have the advantage of locking in lower rates and avoiding exclusions that could apply later if health issues arise.
Why It Pays to Start Early
The cost of life insurance is heavily influenced by how much risk an insurer takes on. The younger and healthier you are, the less risk you represent. Applying now makes it easier to qualify for cover, with fewer medical conditions to worry about and more affordable premiums over time.
Waiting until after a diagnosis, injury, or lifestyle change could mean higher costs, reduced benefits, or even declined applications. Think of it like car insurance—you don’t wait until after an accident to get covered.
More importantly, your ability to earn an income is one of your greatest assets in your early years. An accident or illness could interrupt that income, derailing financial goals such as saving for a home or starting a business. Policies like income protection or TPD (total and permanent disability) help safeguard that earning power. Even if you don’t have children yet, you may have a partner, shared rent, or debts that would create financial strain if you were no longer able to contribute.
The Four Main Types of Cover
Life insurance isn’t just one product. It’s a group of policies that protect against different risks:
1. Life Cover
Pays a lump sum if you pass away or are diagnosed with a terminal illness. It’s designed to clear debts and support loved ones financially. Premiums are generally lower than other cover types, since it only applies in limited circumstances.
2. Total and Permanent Disability (TPD)
Provides a payout if you’re permanently unable to work due to injury or illness. TPD can fund rehabilitation, home modifications, or replace lost future income. Policies may define disability as being unable to work in “any occupation” or, in some cases, in your “own occupation.”
3. Trauma Cover
Also called critical illness insurance, this pays a lump sum if you’re diagnosed with specific conditions such as cancer, stroke, or heart attack. It’s not about replacing income, but about giving you options—time off work, extra medical treatment, or financial support for your partner.
4. Income Protection
Replaces a portion of your salary if illness or injury stops you from working. Benefits are usually paid monthly (up to around 70% of your income) for a set period, after a waiting period. This type of cover is particularly useful for keeping up with day-to-day expenses like rent, bills, and groceries.
Why Buying Young Matters
- Premium choice: Stepped premiums start low and rise with age, while level premiums cost more initially but remain steadier over time. Starting early gives you flexibility.
- Health advantages: Fewer pre-existing conditions mean fewer exclusions and better pricing.
- Future-proofing: Many policies allow you to increase cover after major life events (marriage, a mortgage, children) without needing new medical checks.
- Claim definitions: Trauma, TPD, and income protection have strict definitions. Getting cover while healthy means you’re not scrambling after an unexpected diagnosis.
How Much Cover Do You Need?
The right level of protection depends on your personal circumstances, but a good framework is:
- Debts and commitments: Consider mortgages, rent, loans, or other financial obligations.
- Income replacement: Aim for enough to support your living expenses or family’s needs for a set number of years.
- One-off costs: Factor in medical treatment, rehabilitation, or modifications to your home if needed.
The goal isn’t to buy the largest policy available, but to choose cover that is sustainable long-term and truly suits your needs.
Super vs. Standalone Policies
Most Australians first encounter life insurance through their superannuation fund. It’s simple and often cost-effective, but the definitions are usually more restrictive—particularly for TPD and income protection. Policies outside of super can offer greater flexibility, especially with definitions like “own occupation.” Tax treatment also differs, so it’s important to weigh both options and keep your beneficiary nominations up to date.
Why Cheapest Isn’t Always Best
A low premium doesn’t guarantee a strong policy. What matters most is how claims are defined and paid. Two policies at the same price might have very different exclusions, especially around mental health or common injuries. A policy you can maintain for years is far more valuable than one that looks cheap but doesn’t pay out when you need it.
Mistakes to Avoid
- Waiting until a health issue arises before applying.
- Choosing solely on price without checking definitions and exclusions.
- Underestimating income protection needs.
- Forgetting to review your cover as your circumstances change.
Life insurance may not feel urgent while you’re young, but that’s the very reason it’s the right time to act. Securing the right cover early not only saves money but also ensures you and your loved ones are financially protected when life takes an unexpected turn.
