Whole Life Insurance

Find out about whole life insurance and how it worked in Australia right here with Savvy.

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, updated on July 10th, 2023       

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Whole life insurance (or whole of life insurance) policies once provided Australians with hassle-free coverage for the rest of their lives. A set-and-forget form of insurance, this type of policy was once one of Australia's most popular forms of life security.

But how did whole life insurance work? You can find out how these policies were structured and how they're different from life insurance available today in Savvy's comprehensive guide.

What was whole life insurance and how did it work? 

Whole life insurance was a type of policy which covered you for your entire life (or as long as you continued to pay your premiums). However, such policies are no longer available in Australia. These were common around the country between the 1940s and 1980s until the Federal Government (under former Prime Minister Paul Keating) introduced compulsory superannuation in 1992.

In the days before super, many people used these policies to put money away for their retirement. Once they decided to retire, they’d cash out their policy for its value and live off that amount. However, the rollout of super (through which you can also purchase life insurance) essentially replaced the need for this type of policy. As such, sales of these insurance policies dwindled, and by the late 1990s, most insurance companies had ceased to offer them.

These policies offered a range of benefits, including:

  • Level premiums: whole life insurance policies came with fixed premiums, which meant the cost of your policy stayed the same no matter what. While this was handy for those in their golden years, younger policyholders would often be charged high premiums for their policies relative to their income.
  • Guaranteed payout: these types of policies assured you a minimum insurance payout no matter how long you’d held the policy. They also offered a death benefit in most cases, unless you cancelled your policy.
  • Ability to cash in: whole life insurance products allowed you to hand in your policy for its cash value, a major boon for retirees looking for a stack of cash to live off in their twilight years.
  • Chance to invest: your insurance company would invest a portion of your premium into a savings account which would accumulate interest at a cash rate. This amounted to the policyholder’s cash value.
  • Paid dividends: in some cases, you were able to receive a dividend on the cash value of your policy. These were paid directly to you or used to reduce the price of your premiums.

These policies are still widely used in countries without compulsory superannuation or retirement plans, such as across large parts of Asia.

What are the modern alternatives to whole life insurance in Australia?

While whole life insurance policies may not be available anymore in Australia, there are plenty of other options when it comes to getting a quote for life insurance. Aside from standard policies, you also get the option of the following to cover you for a range of life events:

  • Term life insurance:term life insurance policy offers you coverage for between ten and 30 years, depending on how much you want to spend on your policy and how close you are to your insurer’s age limit. Also known as life cover, this type of policy is designed to offer coverage to you and your family in the event you pass away or are diagnosed with a terminal illness. This type of policy is usually cheaper than what whole life insurance was, as it offers cover for a shorter period and comes without a cash value component.
  • Income protection insurance: this type of life insurance can pay up to 70% of your regular wage as an ongoing benefit if you’re temporarily unable to return to work. Some companies may allow you to claim benefits for up to five years or until the age of 65, depending on the level of coverage you buy and your insurer’s terms and conditions.
  • Total and permanent disability (TPD) cover: this insurance may cover you if an ongoing illness or injury prevents you from being able to work (either in your current position or any position relevant to your education, experience and training). For example, if you were injured in a horse-riding accident and were no longer able to walk, your TPD insurance could pay out a lump sum which you or your loved ones could use to pay for medical expenses and everyday living costs if it prevented you from continuing your job or working at all.
  • Trauma cover: trauma cover can pay out a lump sum if you’re diagnosed with a serious illness or sustain critical injuries in an accident. Under this type of policy, you may be able to claim for events such as a cancer diagnosis, head trauma and a range of heart conditions.

What are the differences between whole life insurance and term life insurance?

If you’re scratching your head wondering how whole life insurance policies differed from term life insurance options which are currently available, here are some of their similarities and differences:

Term life insurance Whole life insurance
Expires after between ten and 30 years, or when you reach the maximum age limit on your policy (for example, some have an age limit of 100).
You were afforded a lifetime of cover with no time or age limits.
Comes with either stepped or level premiums (either paying gradually more each year or paying the same premiums from the beginning which only increase with inflation), meaning you’ll have more choice when it comes to structuring your payments.
Came with fixed premiums locked in for the life of the policy, which made it easier for customers to budget.
You can’t use term life insurance to accumulate wealth for your retirement.
Came with a cash value in addition to the death benefit, which could be cashed in at retirement to provide a lump sum.
Term life insurance is usually one of the cheaper types of life cover available.
Was typically more expensive than term life insurance, as it provided a lifetime of coverage.
Geared towards those with dependents or other major financial commitments, such as a mortgage or school fees.
Was popular with those in their later years of life, such as retirees, who wanted to leave money behind for their children or grandchildren or to help cover the cost of their funeral.

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Compare life insurance policies side-by-side

Through Savvy, you can consider a range of competitive life insurance policies from reputable insurers, whether you're after life, income protection, trauma or TPD cover. Get the ball rolling on comparing your available options today!

Disclaimer:

Savvy is partnered with Compare Club Australia Pty Ltd (AFS representative number 001279036) of Alternative Media Pty Ltd (AFS License number 486326) to provide readers with a variety of life insurance policies to compare. Savvy earns a commission from Compare Club each time a customer buys a life insurance policy via our website. We don’t arrange for products to be purchased from these brands directly, as all purchases are conducted via Compare Club.

Savvy does not compare all life insurance policies or providers currently operating in the market. Any advice presented above or on other pages is general in nature and doesn’t consider your personal or business objectives, needs or finances. It’s always important to consider whether advice is suitable for you before purchasing an insurance policy.

For any further information on the variety of insurers compared by Compare Club or how their business works, you can read their Financial Services Guide.