One of the most common questions we’ve had from clients this year is about their life insurance. In many cases, their renewal notices are showing increases of 25% to 40%! This is a massive jump, and rightly, they are contacting me for an explanation and to see what can be done.
Firstly, it is important to know that it is not just you. Premiums have jumped across the board. Secondly, while reviewing insurance is important and occasionally we explore the competitor’s options, we are seeing very few instances of the premiums being significantly cheaper with other providers. That is, there is rarely a financial benefit to changing policies.
Sadly, the dramatic increases are resulting in many policyholders significantly reducing their covered benefits, or cancelling their policies all together. Our preferred strategy has been to “tinker” with existing policies to make them more affordable for the owner. This can be through a range of strategies:
- Turning off indexation
- Lowering covered amounts
- For income protection, altering the waiting and/or benefit periods
- Identifying any doubling up of policies
As mentioned above, regular reviews are important, but perhaps never more important than now.
Life insurance companies have lost billions of dollars in recent years, as claims have far outweighed premium revenue. Increasing numbers of claims as well as dramatic increases in the length of income protection claims have added to the costs. From 2014 to 2018, mental health claims costs have increased by 32% and accident claims costs have increased by 45%! There is seemingly no sign of these costs reducing either. Life insurance companies typically invest your premiums in low risk investments to assist with making payouts at your time of need. In this historic low interest environment, investment returns are contributing almost nothing to the revenue of these companies.
Insurance premiums can be a significant drain on your cash flow or superannuation balance, and it is natural to question their affordability. Before taking the drastic step of cancelling the cover, be sure to seek advice to see what options you have first. Often some “tinkering” can make the policy more affordable with minimal changes.