No amount of money can replace your health and wellbeing – or the role you play in your family. But you can at least have peace of mind knowing that if anything happens to you, your family has financial security that is provided by life insurance.
With the changing landscape within the life insurance industry leading to rises in the price we pay; insurance may seem like one of those expenses that are not important until you need it. One of the biggest issues Australians face is not only the growing underinsurance gap but the phenomenon of ‘mis-insurance’. This exits where people do not know what they are covered for, are not covered for what they think they are covered for, or do not have the cover that suits their circumstances and risk priorities.
Similarly, they may not realise what types of cover are even available. In some circumstances the consequences of having the wrong cover (mis-insurance) can be worse than having insufficient amounts of the right type of cover (underinsurance). While the world changes and adapts through the COVID-19 health crisis, having certainty about your cover has never been more important, and people need protection now more than ever.
How does life insurance work?
Insurance works by pooling together the premiums of customers. This pooling system makes sure that consumers who experience loss and need to claim are protected. Not everyone will claim at the same time and some people may not need to claim at all – but everyone benefits from the peace of mind protection brings.
Why are insurance premium rising?
There are many factors that can impact insurance premiums, and some of these are changing dramatically over a short period of time. Insurers are now needing to re-assess factors related to an individual’s risk such as hobbies and occupation, whilst managing claim rates against expectations. Australia’s life insurance industry, and particularly income protection, is facing sustainability and profitability challenges in2020, and reported a combined loss of $1.6 billion1.
Income protection policies are driving this experience, with a KPMG study2 showing claims have increased significantly in both incidence and duration. The consequences the COVID-19 pandemic is having on mental health has put even more pressure on the system, as has the record low interest rate environment, which has implications for certain policies that are priced assuming a level of income return that the insurer can earn on premiums.
One of the jobs an insurer must manage is to guarantee that the premiums collected are adequate to pay claims, so they can continue to offer the critically important protection Australians need. Most life insurers pay over 90%3 of the claims they receive. To ensure that the needs of consumers can continue to be met, we have started to experience changes in the price we pay so insurers can continue to provide us with peace of mind.
Managing premium affordability
One of the main challenges facing consumers, is how to balance their competing priorities in a rising cost environment. This means maintaining the right level of protection for your circumstances, and knowing you and your family will always be financially taken care of, whilst making sure that your insurance premiums are affordable. It is important to understand that your life insurance is flexible and can be adapted to your changing circumstances and needs.
Making sure that you review your insurance strategy with your financial adviser ensures that you are paying the right amount of insurance for your family’s needs, should the unexpected happen.
Please contact us if you wish to review your life insurance.