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 start trying to work out how much and what type of cover you need.
For those with existing insurance in place, it is likely you have found that premiums continue to increase every year, more significantly in recent years. We have also seen increases above historical expectations driven by age and indexed benefit adjustments.
In this article we discuss a few key points relevant to everyone.
WHY DO INSURANCE PREMIUMS KEEP GOING UP?
Most policies are written as a “stepped” premium. This means your cost is based on your age, occupation and related risk factors. This makes cover relatively inexpensive when we are younger (when we typically need the most insurance due to higher debt levels and fewer assets). These policies get progressively more expensive as we age.
The industry has continued to see increased claims payments to customers, with significant increases in the mental health space, but also due to an industry shift around 20 years ago to enhance policy terms, now leading to higher claim payouts (which is now translating into improved claims payouts). Insurers need to keep a balance between claim payments and premiums received. This is essentially to balance the books.
The life insurance industry continues to play a crucial role in protecting Australian families. In 2024, Australian life insurers paid $13.3 billion in claims to 95,492 Australians or their loved ones. This equates to approximately $36 million paid every day, supporting around 261 Australians and their families each day when they needed it most.
Source: Council of Australian Life Insurers Annual Report 2025
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 life changing events and illnesses that result in a claim and those claims are getting paid.
We all need to consider having an insurance strategy in place.
You need to consider your own financial position and what happens if something were to happen to you, or your partner and you did not have adequate cover.
Any household should be holding a cash buffer or safety net. But what happens if you or your partner were to suffer a serious injury or illness that meant you were not able to work for an extended period of time? Would you still be able to afford important payments such as the mortgage or school fees? What would happen if you could never work again? Could you pay for ongoing care and still ensure your loved ones were looked after?
Australians have a 1 in 3 chance of taking three months, or more, off work. Furthermore, around 25% of Australians experience mental illness extending over 12 months during their working lives.
Source: Australian Bureau of Statistics – Mental Health and Wellbeing 2020-2022
INCOME PROTECTION POLICIES BEFORE AND AFTER APRIL 2020: IS IT TIME TO REVIEW?
An area of insurance where we have seen significant price rises is older income protection policies (pre-2020), as these offered more favourable policy wordings compared to current policies. However, this now comes at an increased cost.
Policies you have held for a long time may not be like-for-like with current lower cost options, but a current policy may well be fit for purpose and be cheaper. It is important to seek formal advice when making decisions to keep or replace a policy.
How can you implement and maintain an affordable insurance strategy?
Regularly reviewing your insurance arrangements can help identify opportunities to reduce costs while maintaining appropriate protection.
Areas to consider include:
- The "extra benefits" attached to your policy, ensuring they remain relevant to your current circumstances, as these costs can add up over time.
- The sums insured. Typically, insurers provide automatic inflationary increases each year to help maintain the value of your cover. While this can be beneficial, if your insurance needs have reduced over time (e.g. through the repayment of debt), you may be paying for more cover than required.
- Whether your insurer remains competitive in the market, as premiums and policy features can vary significantly between providers.
- For income protection insurance, the underlying policy structure, including waiting periods and benefit periods, can have a significant impact on premium costs and should be aligned to your specific needs and circumstances.
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 depending on their circumstances. It is recommended you speak to a financial adviser about your situation if you have any questions.
For more information, please contact Financial Adviser Graham Southgate or your principal adviser.
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Associate Director and Financial Adviser
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