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Term life insurance is the most common form of life insurance, and will typically pay a lump sum on death or the diagnosis of a terminal illness. Generally policies will pay out on death, although some policies may have exclusions such as where the death is a result of suicide.

Life insurance provides wealth protection for anyone with debt or dependents, allowing them to secure their family's financial future in the event of their death. This may involve ensuring that their family is not left having to pay off debts such as a mortgage or personal loans, as well as ensuring that their family is able to maintain their lifestyle, providing for costs like children's school and university fees, and ongoing living expenses.

Determining how much cover is required

There is no universally correct amount of term life cover, as it will depend on personal circumstances and financial committments which will invariably change at different stages of a person's life. In determining how much term insurance is optimal, factors to consider include - but are not limited to - the following:

• Total debts that would need to be repaid, including any mortgages, personal loans, etc
• Anticipated future costs, including children's education, retirement, etc
• Amount of capital needed for the family left behind to maintain their lifestyle

Many policies may have an option which, if selected, will increase the sum insured in line with the CPI. It is nonetheless important to review the level of life insurance cover periodically or when personal circumstances change. Events such as marriage, the birth of a child, or taking out a mortgage to buy a new home may make it appropriate to re-assess whether the level of cover remains appropriate or should be increased.

Factors affecting the premium

Life insurance premiums are determined by the insurer and will be based on a number of factors, including a person's age, gender, whether or not the person smokes, their occupation, the sum to be insured and whether they would like stepped or level premiums. Depending on the insurer and the level of cover being applied for, the underwriter may require that a medical examination and various tests be carried out. Underwriting has improved significantly over recent years though, with many insurers now able to assess and approve applications in a much shorter timeframe.

Taxation

Premiums for term life insurance held outside of superannuation are generally not tax deductible but the lump sum benefit paid on death is tax free. Many life insurance policies enable the life insured to add total and permanent disablement and/or critical illness insurance as an optional extension to term life.