As the world changes, having certainty about your cover has never been more important. Customers told OnePath Life they found Life Insurance:
· Complicated
· Something we do not like to think about
· One of life’s many expenses.
For this reason, we want to discuss why you premiums increase – and give you the best advice on what to do next.
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 products like insurance are 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 5 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?
1. Income Protection cover cost may increase
2. 3. These increases to be in addition to any age or CPI increases
3. These increases could occur across both stepped and level premiums.
What this price review hasn’t changed:
1. Your level of coverage – you are still covered
2. Your ability to claim – should any curve balls come your way
3. A claims process designed to get you the money and support you need as soon as possible
4. And most importantly…your peace of mind. Rest assured you have coverage to help protect yourself and your family during these uncertain times.
Knowing what your options are in light of these changes is important.
That’s why I’m 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
· extend your waiting period on your income protection policy (i.e. the time it takes for benefit payments to start after you stop working)
· 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