Why Life Insurance Premiums Are Increasing
As the world changes, having certainty about your cover has never been more important. Research found that customers found Life Insurance:
Complicated
Something we do not like to think about
One of life’s many expenses.
Six important things you need to know
(1) It's important to first understand how life insurance works
Insurance works by pooling together the premiums of customers, just like you. This pooling system makes sure that customers 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.
Life insurance is designed in a way that makes sure:
Everyone in the pool benefits from the peace of mind in knowing that the pool is there and full.
Everyone has the same opportunity to claim from the pool should life throw a curve ball at them
Everyone contributes their fair share based on their health, which is determined through the underwriting process.
At the end of the day, that’s what life insurance is designed to do – help you recover when the unfortunate occurs.
(2) You can be confident that if something were to happen, your claim would be paid
In life you cannot predict, but you can protect – and you have more certainty than you may think. Most life insurers pay over 90%* of the claims they get in.
Insurers are in the business of paying claims. That’s why they exist.
(3) How premiums are calculated
There are many factors that can impact your premium, and some of these factors are changing dramatically across the population.
When calculating your premium, life insurers assess factors related to you specifically:
Personal risks – hobbies and occupation
Age and sex – risk profiles
Level of cover – more cover means higher premiums.
In addition, life insurers assess other factors related to all of their customers, such as claims rates against expectations. They look at things like:
How many new claims they think will come in; and
How quickly people on Income Protection claim will get better and return to work.
It’s here that the industry is seeing major changes against expectations.
(4) The reality is the life insurance industry is seeing more Income Protection claims go for longer than anticipated.
Did you know that over the last five years, Australia’s life insurance industry has made $3.4 billion dollar losses?^
This has been driven by many factors, but largely by accident claims and the large mental health crisis our country faces.
From 2014 – 2018
Mental Health claims costs have increased by 32% #
Accident claims costs have increased by 45% #
One of the jobs an insurer must manage is to ensure that the premiums collected are of a level to ensure claims can be paid, so they can continue to offer the critically important protection Australians need.
(5) What will happen to your insurance policy?
All customers with cover like yours will experience the same rate of increase at renewal time – no one will be treated differently. In fact, many of the largest life insurers in the country have increased their premiums over the last 12 months.
(6) WE ARE here to help
Knowing what your options are in light of these changes is important.
That’s why Pacific Wealth Solutions is here – to help you reflect on your needs and to make sure you know exactly what to do next.
If you’re concerned about your insurance premium, please let me know. We have control over the costs of your cover, and I can work with you to:
change your cover type from a comprehensive cover type to a standard one
remove some extra-cost options you may have selected
lower your amount insured
switch off indexation (which increases your amount insured to protect against inflation) at your next policy anniversary
extend your waiting period on your income protection policy (i.e. the time it takes for benefit payments to start after you stop working)
reduce your benefit period on your income protection policy (i.e. the total amount of time you may be eligible to receive income protection benefits).
explore the opportunity for tax deductions for your premiums. If you’re eligible, this can help to reduce the impact of premium increases.
Sources:
*moneysmart.gov.au/how-life-insurance-works/life-insurance-claims-comparison-tool
^ APRA, losses are before tax in respect of the 5 years ended 30 September 2019
# KPMG Disability Income Insurance Data Experience Analysis 2020
If you’d like to discuss any of the above content further and how it may apply to you, please contact your financial adviser via info@ultimumfinancial.com
GENERAL ADVICE WARNING
The advice contained within this document does not consider any person’s particular objectives, needs or financial situation. Before making a decision regarding the acquisition or disposal of a Financial Product, persons should assess whether the advice is appropriate to their objectives, needs or financial situation. Persons may wish to make their assessment themselves or seek the help of an adviser. No responsibility is taken for persons acting on the information within this document. Persons doing so, do so at their own risk. Before acquiring a financial product, a person should obtain a Product Disclosure Statement (PDS) relating to that product and consider the contents of the PDS before making a decision about whether to acquire the product.