Insurance – are you paying too much?
For those without cover, personal insurance policies are filled with often confusing terminology and a wide range of options and structures. It is necessary to understand this before you get to working out how much and what type of cover you need.

For those with existing insurance in place, it is likely you have found the premiums continue to increase every year and in more recent years, we have seen a trend of increases above the usual expected age and indexed benefit-based increases. 

In this article we discuss a few key points relevant to everyone.

Why do Insurance Premiums keep going up? 

In recent years the industry has continued to see increases in claims paid out, particularly in recent times in relation to mental health claims since the start of the Covid-19 pandemic. 

Insurers need to keep a balance between claim payments and premiums received.  Essentially to balance the books. 

The life insurance industry is playing its crucial role in protecting the Australian community. Overall, during 2019 life insurance companies paid out $12 billion to 101,821 Australians and their families. Every single day last year, the industry paid out the equivalent of almost $33 million to 279 Australians and their families, providing crucial financial support when people need it most (source: TAL 2021).

Is personal insurance worth it? 

The fact that premiums have increased due to increased payments to insured individuals is clear evidence that sadly people do suffer events and illnesses that result in a claim and that claims are getting paid. 

We all need to consider having an insurance strategy in place. 

Australian’s have a one in three chance of having three months or more off work.  Furthermore, 45% of Australians experience mental illness in their lifetimes and one in five adults experience a mental disorder in any one year (source: AIA, 2018).

Income Protection Changes – no longer a guaranteed contract? 

APRA (“Australian Prudential Regulatory Authority”) has already implemented changes limiting what types of contract insurers can offer for income protection, with it no longer being possible to have an “agreed value” contract since April 2020.

From October 2021, new changes are due to be implemented, two of the most relevant being:

  • Policy contracts are to be limited to 5-year terms, at which point the insurer is to review the insured’s occupation, financial circumstances, and pursuits.
  • The renewed contract (if offered) will be on the life company’s current contract (not previous). Income at time of claim will be aligned to the date of disability (unlike current contracts which have more flexibility around when income is measured).

Pre-October 2021 – An Income Protection Opportunity 

Income Protection taken out prior to October 2021, will still enjoy the current terms. 

If you are considering your overall insurance needs, then you should be thinking about getting this done before October.

How can you implement and maintain an affordable insurance strategy

There are some actions you can take to ensure that you only pay for the cover you need, such as reviewing: 

  • the “extra benefits” attached to a policy, to ensure that this is relevant to your current circumstances, as the cost of these can add up over time. 
  • the sums insured.  Typically, insurers provide inflationary benefit increases, which are applied automatically each year.  This is valuable if you need to ensure your benefit amount isn’t eroded by inflation, however, if you have reduced your actual insured need (e.g. through payment of debt) overtime, then you may end up paying for more cover than required.
  • Review the market

With income protection, the underlying structure, such as the waiting and benefit periods, can have a significant impact on the premium cost and should be matched to your specific situation.

Review Your cover 

Everyone has a different personal insurance need depending on their own circumstances. As specialists in insurance advice, Prosperity’s financial advisers can help you to:

  • identify your personal needs and any shortfalls you may currently have 
  • understand the wide range of options available 
  • provide appropriate recommendations and help put these in place.

We look to achieve this to ensure your insurance strategy covers your personal needs, whilst maintain a balance between cover and affordability. 

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

This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. If you decide to purchase or vary a financial product, your financial adviser, Hillross Financial Services Limited and other companies within the AMP Group may receive fees and other benefits. The fees will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. Please contact us if you want more information. Prosperity Wealth Advisers Pty Ltd (ABN 32 141 396 376), is an Authorised Representative and Credit Representative of Hillross Financial Services Ltd, Australian Financial Services Licensee and Australian Credit Licensee.