What is life insurance and how does it work in Australia?

Life insurance pays a lump sum to your nominated beneficiaries if you die, and lets you advance the same benefit early if you are diagnosed with a terminal illness. The contract is between you and a life insurer regulated by APRA and ASIC.

In Australia, all retail life insurance contracts are governed by the Life Insurance Act 1995 and the Insurance Contracts Act 1984. The 9 panel insurers IMFL works across are AIA, Zurich, TAL, OnePath, ClearView, NEOS, Encompass, Acenda, and Futura.

How a policy works in practice

1. You apply for a sum insured (the dollar amount payable on death).
2. The insurer underwrites your health, occupation, and lifestyle (Topic 14 of the duty to take reasonable care, Insurance Contracts Act s20B).
3. The insurer issues a Policy Schedule listing your premium, any loadings, and any exclusions.
4. You pay premiums monthly, quarterly, or annually to keep the policy in force.
5. On death, your beneficiary or estate lodges a claim with a certified death certificate and the insurer pays the sum insured.
6. If you are diagnosed with a terminal illness meeting the policy definition, you can claim the same lump sum while still alive. Paying one cancels the other.

Where each panel insurer documents the death and terminal illness benefit

• AIA Priority Protection PDS (Version 32, 9 November 2025), Section 2.1: pays a lump sum equal to the Life Cover Sum Insured on death; Terminal Illness Benefit advances the same Sum Insured.
• Zurich Wealth Protection PDS (1 November 2025), Death cover section: pays a lump sum on death or terminal illness.
• TAL Accelerated Protection PDS (12 December 2024), Section 2.1.1: Life Insurance Benefit Amount is payable on death or Terminal Illness.
• OnePath OneCare PDS (1 October 2025), Life Cover section: designed to provide a benefit on death or terminal illness; Death Benefit pays the Life Cover amount insured.
• ClearView ClearChoice PDS (13 May 2024, update 5 June 2025), Life Cover section: pays the Life Cover benefit amount on death or terminal illness diagnosis.
• NEOS Protection PDS (6 December 2024), Life Cover section: pays a benefit on death or terminal illness.
• Encompass Protection PDS (26 September 2025), Section 1 Life Cover: lump sum payment on death or terminal illness while Life Cover is in force.
• Acenda Insurance PDS (27 September 2025), Life Cover Benefit and Terminal Illness Benefit are the two built-in benefits.
• Futura Protection PDS (1 October 2025), Life Cover section: pays a benefit on death or diagnosis of a terminal illness.

Terminal illness definitions vary across the panel

8 of the 9 panel insurers use a 24-month life-expectancy threshold. TAL is the exception at 12 months. The full per-insurer breakdown sits in the dedicated FAQ on terminal illness cover. The relevant PDS sections are: AIA; Zurich; TAL; OnePath; ClearView; Encompass; Acenda; Futura. NEOS uses the 24-month industry standard.

For super-held cover, all 9 insurers additionally require satisfaction of the SIS Act Regulation 6.01(2) terminal medical condition definition (24-month life expectancy, two medical practitioners certifying, one a specialist).

Retail versus direct life cover

The 9 panel insurers issue retail life cover: broker-distributed and individually underwritten. Direct life cover (sold direct-to-consumer through TV ads, comparison sites, and bank or credit-card channels) is a separate distribution channel with limited underwriting at application and tighter on-claim assessment. The two are different products and should not be compared on premium alone. IMFL's panel is retail only.

Tax treatment

Life insurance death benefits paid outside super are tax-free to the beneficiary or estate. Death benefits paid inside super to a tax dependant (spouse, child under 18, financial dependant, interdependency relationship) are tax-free under ITAA 1997 s302-195. Death benefits paid inside super to a non-tax dependant (commonly an adult child) attract tax on the taxable component, up to 17% (15% plus Medicare levy) from a taxed fund and up to 32% from an untaxed source under ITAA 1997 s302-200.

Regulator anchor

Life insurance contracts are governed by the Life Insurance Act 1995 (Cth) and the Insurance Contracts Act 1984 (Cth). APRA prudentially regulates insurer solvency; ASIC regulates conduct and disclosure. The Life Insurance Code of Practice 2019 sets industry standards for claims handling, complaints, and plain-English communication.