The three types of life insurance policies you can buy

You know you want life insurance—that’s an easy decision. The next step is where it can get a little bit confusing, because you’ll need to pick which type of policy to buy: direct, advised, or group insurance?

Before you can decide on a policy type, it helps to know what you’re dealing with. Once you know the difference between direct, advised, and group insurance, you’re in a better position to make a smart choice.

Here’s an explanation of each type, along with the advantages and disadvantages of each.

Direct life insurance

Direct life insurance is life cover you buy directly from the insurer themselves; the only parties involved are you and the insurer. This type of insurance appeals to many shoppers, because it seems the least complicated.

The main pro of buying direct is that you may not have to provide medical information during the application stage, though it may be required when it comes time to make a claim.

While this can be true if you know exactly what you’re looking for, life cover can be confusing, especially if you haven’t bought it before. It’s hard to know if you’re getting a good price, or, more importantly, the right kind of cover for your needs.

One perceived advantage of direct life cover is that it’s cheaper to buy direct, though this isn’t always the case. Prices can fluctuate depending on your medical history, the type of insurance you want, and the benefit level you choose.

The disadvantage of direct policies? It’s up to you to do the legwork. Be prepared to thoroughly research an insurer and their policies before making a decision. You’ll need to do this with each insurer and policy that you’re interested in, which can become a time-consuming process.

The following kinds of policies can be purchased direct, as standalone policies or in combination:

  • Life cover
  • Income protection cover
  • TPD cover (any or own occupation)
  • Trauma cover

Advised life insurance

Advised life insurance is cover you purchase with the help of an insurance adviser. You’re still able to choose a policy with features that fit your needs, but you’ll have the added benefit of professional advice.

Everyone’s life cover needs are different. In fact, your own needs may change over time. It helps to have an insurance expert on your side to advise you on your personal situation.

People with advised life cover may also find that they have a smoother claims process. Your adviser can help you or your beneficiaries if a claim needs to be made, which could lead to a better outcome.

An insurance adviser can help you answer confusing questions, like how much insurance you need and which kinds of cover are right for you. It isn’t necessarily cheaper, though it can be depending on the policy.

The application process for advised life insurance may be different than with direct life insurance, because you’re submitting your application through an adviser rather than directly to the insurer.

Advised life cover applications tend to be more thorough, with more questions asked. You’ll usually be assessed on any pre-existing medical conditions, which means peace of mind when it comes to making a claim. This is in contrast to direct insurance policies, which are not medically underwritten.

You can purchase the same kinds of policies as with direct life insurance:

  • Life cover
  • Income protection cover
  • TPD cover (any or own occupation)
  • Trauma cover

Group life insurance

Group life insurance is a policy you typically purchase through an employer or a superannuation fund. The policy is actually held by the employer or super trustee, though it’s still the employee or fund member who is insured.

Group insurance can be purchased for groups of varying size, from small companies to large corporations. As a result, the insurer may provide a group discount, so you’ll pay lower premiums than you might by buying direct.

With group life cover, you often don’t have to go through an underwriting process, which means you don’t have to do a medical exam first. However, this isn’t always the case and it is possible that you’ll still have to provide medical details.

The downside of group insurance is that it’s purchased as a ‘one-size-fits-all’ policy, rather than being customised for your needs. Benefit limits aren’t set based on your financial situation, and you may not be able to access all the features you want.

Group cover usually offers the following kinds of cover:

  • Life cover
  • Income protection cover
  • TPD cover (not included with all group policies)

Note that with Total and Permanent Disability cover, group policies usually only cover ‘any occupation’ definitions. That means you’re only covered if you are unable to work in any occupation, as opposed to your own occupation.

So which type of life insurance is best for you: direct, advised, or group? It’s a personal decision, which means there’s no right answer across the board.  

One thing’s for sure—if you want to find a good price on life insurance, you’ll need to shop around. And here’s where advised life cover may have the edge; not only can you compare a range of policies, but you can get professional advice on the advantages and disadvantages of each.

With Life Insurance Comparison you can compare policies from 11 of Australia’s leading life insurers, all in one place. It’s a fast, simple way to compare your options and choose a policy that’s right for you.

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