Insurance costs have increased 40% over two years – are you paying too much?
Those with life insurance policies have undoubtedly noticed a significant increase in their premiums in recent years.  Some income protection policies, which usually account for the largest portion of a protection budget, have increased in excess of 40% in the last 24 months alone. Despite not pinpointing any one insurer, we can confirm these rate rises are consistent across the whole insurance industry.  

Why the big increase?

Insurance pricing is a delicate balance between historical data, projected claims, operational costs and shareholder profit.  What has recently occurred is a situation where insurers were paying out more than they were receiving due to significant increases in claims. While no-one likes to see insurance costs increase, it’s equally important that insurance companies have a sustainable business model so they can continue to honor the insurance contracts entrusted them with.

When looking at the data it’s not surprising that income protection has received the biggest price increases, with working Australian’s having a 1 in 3 chance of having 3 months or more off work.  Furthermore, 45% of Australians experience mental illness in their lifetimes and 1 in 5 adults experience a mental disorder in any one year (AIA, 2018). 

Strategies to make insurance affordable

While this information highlights the importance of having comprehensive insurance cover, ensuring the costs remain affordable is an ongoing challenge.  One strategy to mitigate rising costs is reviewing the extra benefits and features that are included in policies.  Although initially these extras may have represented negligible costs, the additional premium can add up substantially over time.

Another big contributor to income protection costs is the policy’s waiting period.  If you have a lot of accrued leave, access to savings or a dual income family, consider exploring a longer waiting period as this can reduce the costs in excess of 40% per annum.

Keep an eye on your total benefit amount (the sum insured) as most insurers apply an inflationary benefit increase each year.

Lastly, keep an eye on your total benefit amount (the sum insured) as most insurers apply an inflationary benefit increase each year.  While this can be useful to ensure your benefit amount doesn’t get eroded by inflation, it does add a further 3%-5% cost increase per annum.  Unless you’ve taken on extra debt or had a change in family situation, chances are your insurance needs may actually be less than when you first took out the cover.  If your investments have increased, home loan has reduced or kids have finished school, then you may be in a good position to start looking to reduce your sum insured.

Recognising that everyone’s circumstances are different and the continuing trend of rising insurance costs, it’s more important than ever to regularly review your polices.

As specialist insurance advisers, we ensure policies are tailored to specific circumstances and in doing so maintain appropriate balances between cover and affordability.

To review this further, please contact Hamish Landreth on 1300 795 515 or your principal adviser.

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