Life Insurance policies in Australia today are typically offered on a ‘term’ basis. This means that the insurance company offers to provide insurance for a period of time. This period is typically until the person who is insured reaches a certain age. For Life Insurance this can be anywhere from 60 – 99 depending on the life insurance provider.
Limited Term Life Insurance is a policy offered by an insurance company on a more ‘limited term.’ Limited Term Life Insurance policies are offered for a period of years rather than age. More common Limited Term Life Insurance policies are for 5-years, 10-years and 15-years.
Historically, Limited Term Life Insurance policies were more common, however only a handful of life insurance companies now offer limited term life insurance broadly.
Limited Term Life Insurance is commonly used for business purposes or to provide protection against short term needs. A common requirement for Limited Term Life Insurance can include covering short term individual and business debts.
What is the difference between Limited Term Life Insurance and Life Insurance?
The only real difference between Limited Term Life Insurance and a typical Life Insurance policy is the expiry of the policy. Where Limited Term policies expire after a set time, a standard life insurance policy could expire at age 99!
The events covered under the two different policies are generally the same. Limited Term Life Insurance covers death via any cause (except suicide in the first 13 months) unless limited by the terms of the policy. Limited Term policies generally cost the same as a standard life insurance policy as the events covered under the policy are the same.
Where a need for life insurance continues, people who have limited term life insurance need to reapply to the insurance company at the end of the limited term.
Limited Term Life Insurance and Underwriting
Limited Term Life Insurance is more commonly offered as a result of an application for life insurance that has been assessed as a higher risk. If a life insurer determines an applicants longer term risk is too high; a life insurer can offer a limited term policy with full coverage for the term offered.
This can be valuable to clients with more extensive medical history as the option to get coverage for a limited term provides a more comprehensive level of cover over accidental death coverage and is an option that an insurer has to avoid having to decline an application.
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MoneyGeek wants to make sure our readers get easy to understand information to assist make the right financial decisions. Choosing the life insurance policy is a complex decision. MoneyGeek has teamed up with Keyperson Insurance to provide free insurance comparisons and advice to assist you set your life insurance up to protect your family and your pocket!
About the Author – Benjamin Irons
Benjamin has been involved in the financial services industry since 2004. Benjamin has a Bachelor in Business, Diploma of Financial Services (Financial Planning). Previously a Financial Adviser and a business owner, Benjamin has worked with hundreds of individuals and businesses to implement simple strategies to improve wealth. Benjamin writes for a number of websites to assist people take control of their finances and find their financial freedom!