Personal insurance essentially consists of four parts, which are grouped together under the heading of "life cover." The four categories are death, disability, trauma, and income protection or replacement coverage.

The basics of life insurance

A predetermined capital payout is provided by a basic life insurance policy upon death. This can result in an immediate sizable estate at no expense for younger families, who often have fewer assets to fall back on.

With no-commission insurance, $1 million in death coverage for a 33-year-old male professional who does not smoke might cost as little as $410 per year and $310 for a woman.

As with all insurance types, life insurance works best when premiums are proportional to the likelihood that the insurer will have to make a payout. Statistics on life expectancy in this situation are crucial in figuring out premiums.

That means males pay more in premiums than females and over a period where statistically, young males do silly things (their mid-twenties); there’s a noticeable increase in premiums. This drops off once males “become more sensible” in their 30’s only to increase again as they age.

Terminal Illnesses

And you don’t have to die for yourself and your loved ones to benefit from the cover. It’s little known by most that most term life insurance policies will provide a portion or the full amount of the insured benefit on diagnosis of a terminal illness where there is a prognosis of death within 12 months or 24 months, depending on the policy.

That aspect might allow you to sort out your affairs with your loved ones before you die.

Trauma Insurance

That facility shouldn’t be confused with a separate type of coverage called trauma or crisis-type insurance. These policies pay out on diagnosis of certain conditions which might not necessarily be terminal. Examples include heart attacks, strokes or even severe burns.

There are two main types of life insurance in the market. Stand-alone policies where the premium simply pays for the cover is usually referred to as term insurance. Stop paying premiums and the coverage ceases. That’s the usual type of cover sold today and also built into most super funds.

Whole of life / endowment policies

Older style whole-of-life or endowment policies have an investment component bundled in with the life insurance cover. They were a popular product up until the 2000’s helped by the fact that they paid big commissions to advisers that sold them.

Although proponents of the old “whole of life policies” argue that the savings component will provide a buffer if you can’t make payments, the investment returns are so poor with these funds that you might be better off having a separate investment, funding the premiums that way.

Modern term cover policies provide greater flexibility and allow you to adjust the level of cover as life changes. In the early years of adulthood, the life cover is higher to allow for the lower overall asset pool to fall back on. As we move through life and acquire assets and investments to support our loved ones, the level of life cover can be reduced, resulting in a lower outlay for premiums.

Where you can save money on life insurance

How the cover is taken out is another area where differences lie and provide the first opportunity to save money.

By far, the most tax-efficient way is to take out life insurance through a superannuation fund. While this is restricted to death, disability and income protection cover, big savings can be made.

Group schemes, generally offered through employer superannuation funds, provide global cover to most members of the fund who opt-in. Because the insurer often has a broader premium base and is operating in the wholesale market, cover in this form is sometimes cheaper than with an individual policy. It’s also cheaper because usually no commission is paid on these types of schemes.

You can generally transfer existing outside cover into your super scheme with minimal paperwork. Savings could be anywhere between 20 and 40 per cent cheaper than an equivalent non-super premium on an individual policy.