Insurance – are you paying too much? | Insights

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.

Australians have a one in three chance of taking 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.

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, ensuring they are relevant to your current circumstances, as these costs 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) over time, 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 aim to ensure your insurance strategy meets your personal needs while maintaining a balance between cover and affordability.

Different strategies benefit individuals differently depending on their own circumstances. It is recommended you speak to a financial adviser about your situation if you have any questions. For more information, please contact Director Gary Dean on 1300 795 515 or email gdean@prosperity.com.au.

This communication 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. Prosperity Wealth Advisers (ABN 32 141 396 376) is an authorised representative of Prosperity Wealth Advisory Services Pty Ltd, Australian Financial Services Licensee (533675).