by Lachlan Ashelford
No one likes paying for insurance, yet everyone understands the need to protect themselves and their family financially from unfortunate life events.
We therefore wanted to share some of the interesting conditions in the life insurance industry and information on how your superannuation relates to your life insurance.
What is Life Insurance and Why is it Needed?
There are many different forms of life insurance. These primarily include insurance for someone’s life (life insurance), insurance in the event someone is deemed total and permanently disabled (TPD insurance), insurance to protect someone’s income (income protection insurance) and insurance to protect someone who experiences a traumatic illness such as Cancer (Trauma or Critical Illness insurance).
Generally, the purpose of utilising life insurance is to generate capital to pay down debt and produce an ongoing income to be able to pay household expenses, in addition to protecting individuals and families financially in the event someone becomes injured or ill for the long-term.
The Current State of Play in the Life Insurance Industry
Surprisingly, the life insurance industry in Australia is struggling financially. APRA’s March 2020 data showed that, collectively, the industry lost $1.8 billion in the year to 31 March 2020. This has driven substantial changes to pricing within the industry as evidenced by OnePath in August 2020 confirming to their existing clients that they would be raising income protection premiums by 25%. Some industry insurers have increased premiums aggressively, and others have taken a ‘wait and see’ approach to the current issues.
This highlights the importance of having your life insurance policies reviewed regularly to ensure you hold the appropriate policy and level of cover, and that it is priced competitively.
Another very evident change in the life insurance industry in Australia in recent times, which can also be linked to the poor profitability of the industry, is that life insurers are being even more selective as to who they insure. Some of the changes we have seen in the underwriting process are in the areas of mental health, and back and neck related issues. These areas are being closely reviewed by life insurance providers as part of their process.
This highlights the importance of having underwritten life insurance policies in place early on in life to try to mitigate potential exclusions or premium loadings as health issues can become evident with age.
Superannuation and Insurance
A current myth which exists is: “The life insurance cover in my super is enough”. Presently over 70% of Australian life insurance policies (more than 13.5 million separate policies) are held through superannuation funds. While this cover is great to have, most of these policies only provide the minimum level of cover, which is not enough for most people. In fact, Rice Warner estimates the median level of cover in superannuation meets only 60% of needs for life cover (or just 38% for families with children), 13% for TPD cover and 17% for income protection.
When considering how to protect yourself and family in relation to life insurance, there is absolutely the ability to fund this through your current superannuation fund. However, expert advice in this area is essential to be able to protect your family and loved ones sufficiently and in a cost-effective manner.
A Recent Insurance and Superannuation Case Study
As a recent example of how we assist our clients in this area, we were consulted by a young couple who have a 2-year-old daughter. The husband had the standard default insurance cover through one of the major industry super funds in Australia and his wife had no life insurance in place through the same industry fund.
After discussions with them, we were able to determine the levels of insurance required for both the husband and wife. The premium quote for the recommended cover, taken out through their industry super fund was $7,458 per annum as opposed to the quote we recommended of $3,450 per annum.
Our recommended cover continued to be funded via the couple’s current super fund, which covered the bulk of the ongoing cost, and the cover was of a superior structure and quality to their prior arrangements through their industry fund. This was a great outcome, saving over $4,000.00 per annum for our clients, and it highlights the enormous benefit of seeking specialist advice in this area.
Lambourne Partners and Life Insurance
If you would like to explore your options with someone who cares about making the ‘unexciting’ subject of insurance interesting, contact Lachlan Ashelford in the form below or call (02) 4969 6600 to book in for a complimentary chat.