Life Cover: More essential than ever

April 27th 2021 | Categories: Financial Planning | Insurance |

On the 1st of April life insurance premiums were set to rise by several leading providers with many already increasing prior to this. For some people, this may be the second increase within the last 6 months causing many to question their need for insurance, yet insurance is just as important now if not more than ever before.

Conflicting priorities

A survey by KPMG found that only 35 per cent of Australians thought life insurance was essential and just 30 per cent believed they needed income protection. But when it comes to car insurance, 79 per cent viewed cover as essential and yet, during COVID-19, car usage reduced as many were working from home and restricting their movements.

As the COVID-19 health crisis has reinforced our vulnerability in terms of health and the fragility of life, the need for life and income protection insurance has probably never been greater.

What would happen if you became too sick to return to work or if you passed away? Who would pay the mortgage, living costs, health insurance and utility bills for you or the family you left behind? For those with outstanding debt and dependants, life insurance will always be an important consideration.

It should also be remembered that the current health crisis does not rule out people getting sick with other illnesses, some linked to COVID-19 and some not. Mental health is one of these health issues and is becoming increasingly prevalent.

“I cannot begin to imagine how much harder everything would have been in losing Lindsay if the family faced financial uncertainty as well. Without insurance policies in place, I would have had to sell our home, return to full-time work and remove the girls from their existing school. My heart breaks for people out there in this situation. I know that the grief of losing your loved one is a heavy enough burden to bear without the added weight of financial worries.” – Tracey

Read her story here.

You may be interested in our article: A guide to personal insurance

Claims on the rise

In the June quarter, the life insurance industry reported a net after-tax loss of $179 million on its individual income protection products, driven largely by claims for mental health issues in the wake of COVID-19.(i) Mental health claims are expected to grow even further as it is thought most people take more than a year to report such issues.

With claims on the uptick, this has meant the insurance industry is either looking to increase premiums or already has. This, in turn, may discourage people from keeping their cover.

Indeed, the KPMG survey said that 38 per cent of policyholders were looking to cancel their income protection insurance in the next 12 months, and 25 per cent were planning to drop life cover.

On the plus side, many Australians have some level of life and income protection insurance in their super. However, if you were to lose your job, then paying premiums on your insurance in super would come out of your fund balance, reducing your retirement savings over time.

Also, your insurance might well cease when you lose your job unless you opt to take out a private policy. You generally have 60 days to take up this option.

Our client Craig, a healthy 41-year-old was on holiday in Sydney, training for a half marathon when he suffered a heart attack. Whilst it took some time to be correctly diagnosed, a genetic heart condition was discovered, and two surgeries followed.

Craig says, “our insurance cover gives us peace of mind for our family into the future if something were to occur. I would take comfort in knowing there would be sufficient cover in place, cover I would not otherwise have been able to take up having been recently diagnosed with a heart condition. And it’s all thanks to receiving Steve’s professional and correct advice a number of years ago.

Read his full story here.

You may be interested in our article 5 life insurance questions you’ve always wanted to ask

Redundancy payments

If your income protection insurance is outside super, then be mindful that not all policies include redundancy claims. And those that do may have restrictions. For instance, there is usually a waiting period of up to 28 days before any payments will be made.

If you are thinking of taking out a policy now to cover you in case of redundancy given the current economic environment, then you will probably have to go through a six-month no-claim period before you can benefit. During that six-month period, there must be no indication from your employer that redundancy may be on the cards.

Many insurance companies recognise the financial and personal difficulties many people currently face, and some have offered to reduce or even suspend premiums without any loss of continuity to your policy.

One alternative may be having a professional review your insurance, your situation may have changed since your policy was put in place or we may be able to reduce your premium by reducing the cover you have and reviewing insurance built into your super to ensure you’re not doubling up on any policies. It’s important to be mindful of your needs and ensure you have adequate cover and remember if your situation changes, so too should your insurance.

How much is enough? Find out here.

“If I learnt anything from the negatives that we faced, it was the importance of ensuring strong insurance is attached to your superannuation.”

You can read his full story here.

Personal Insurance Checklist:

Review insurance premiums to ensure you’re not paying too much
Check you have the right level of coverage
Check for insurances in your super
Carefully read your insurances so you know what and how you can claim. You may be interested in our article “have you had a claimable event when using insurance”
Review if it is better to keep your insurance inside or outside of your super
Discuss your insurance with your adult children or loved ones. You can read more on that here: how and why to talk to your adult children about insurance
Seek the advice of a professional

The road ahead

The insurance industry, like many others, is being forced to look at a different way of doing business in a post-COVID-19 world, with simpler policies and flat premiums all being discussed.

In the meantime, making quick decisions on whether you still need insurance, or your current level of insurance, may prove a mistake. If you are thinking about altering your cover, give us a call first to discuss your insurance needs.

The right advice can make a big difference in your financial future. Why not speak to one of our Advisers today?

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What you need to know

This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.

i https://www.fsc.org.au/news/income-protection