Australian Life Insurance Market: What You Need to Know
The Australian Life Insurance market is made up of a range of different insurance products from life insurance companies, general insurance providers, mutual societies, major banks, friendly societies, credit unions and superannuation providers. Knowing what cover is necessary for your situation and actually purchasing it can be a daunting task. Some key things to look out for include;
- The Insurance Provider offering the policy
- The benefits and features of the policy
- The policy exclusions/inclusions
- Flexibility of the policy
- Superannuation cover options
- Eligibility Requirements
This is by no means an exhaustive list of what should be considered when looking at different policies. This article will give an overview of the Australian Insurance market before offering key tips on how to compare different policies and go about taking out cover.
Australian Life Insurance in the Early Days
Australian life insurance has evolved over the years to now offer consumer a range of products with a range of benefits and features tailored towards different consumer needs. In the early years, life insurance was inherited from large British companies and it was initially used to protect the wealth of the squatters, business people and landed gentry. As the Australian industrial base grew in importance, life insurance was extended to the work force through easy to pay regular premiums.
For many years, Australian workers provided their own meagre retirement funds through surrendering their whole of life assurance policies when they left the workforce and although this often wasn't enough to last long at that time, few workers lived far past their retirement age and a great number never even reached retirement.
How Life Insurance in Australia has Developed
Whole of life assurance policies were the staple life insurance Australia wide for many years. Agents sold the policy by going from door to door throughout the entire country. It was a policy that included an investment portion that after time built up a value of its own which allowed the policyholder to borrow fund from his/her policy. Many people did just that and for the poor it became a means of banking. If a whole of life policyholder needed more money than the amount he or she could borrow, the policy had a surrender value that paid more. This got many people out of financial trouble at various times of their lives but once the policy was surrendered the person became uninsured once again and another had to be purchased from the agent, this time carrying a higher premium.
The Arrival of Superannuation in Australia
It was difficult to compare life insurance back in the old days, but now that was a thing of the past. The biggest change occurred when the Australian federal government made superannuation compulsory for all workers. No longer did low paid workers have to provide their own savings scheme through taking out whole of life assurance policies. They are putting money aside where it couldn't be touched could now be done through superannuation and they could ensure their lives through cheap term insurance through the same fund.
Term insurance had always been available and it was often used to protect creditors, especially banks, when they loaned money for housing or motor car purchases but it was never taken up as the insurance used by low paid workers as they weren't attracted to the idea of losing all the premiums they had paid if they survived the term of cover. Whole of life insurance had conditioned them to the idea that the life insurance company would at some stage have to give your premium money back to you, or your dependents, either when you died, or when you surrendered the policy. A term life insurance policy has no surrender value.
Compulsory Superannuation Changed the Australian Life Insurance Landscape
With superannuation now providing a healthy retirement benefit and cheap term insurance providing a large death benefit, whole of life assurance policies slowly declined in popularity and today it's no longer sold in Australia. Life insurance quotes Australia wide are now basically confined to term life, income protection, total and permanent disability, and trauma insurance.
Advances in technology has made the comparison and purchasing of process of life insurance much easier for buyers. Buyers can compare multiple policies online simultaneously and submit their details to a adviser in a safe and secure manner.
- Term Life Insurance: A cheap way of obtaining large amounts of protection for your family or business partners should you happen to die during the term of the cover. Term life insurance premiums generally start out quite low and increase overtime with the policyholders age. It provides ideal protection at low cost for periods when you are heavily exposed financially such as when you enter into a mortgage to buy a home and when you are bringing up a family.
- Income Protection Insurance: A most important life insurance cover in the sense that we all aspire to a certain standard of living and this is mostly provided by our ability to earn. If it happens that we can't attend work through a prolonged illness or injury and our employers sick pay has expired, we will stand to lose all we have worked so hard for. Income protection insurance will guarantee at least 75% of your average income will keep flowing until you're well enough to go back to work again.
- Total and Permanent Disability Insurance: An Insurance cover that will pay a lump sum amount if you have become totally and permanently disabled. This money can go towards the costs of necessary home modifications and assist both you and your family in transitioning to a new way of living.
- Trauma Insurance: This type of cover pays a lump sum amount if you suffer a traumatic event that impacts on your life. Some insurance providers will offer cover for up to 50 different medical conditions such as; diabetes, brain tumours, cancer, heart attack, stroke, loss of limbs and Alzheimer's disease etc. This insurance is not a replacement for income protection insurance but designed to help you pay off debts and any rehabilitation costs.
Taking out protective insurance is a significant financial commitment so its only normal for people to feel slightly overwhelmed with the whole process of comparing and applying for insurance. An insurance consultant can make the process much easier by comparing the market for you and explaining the different benefits and features of each policy. An insurance consultant can also help you determine an appropriate level of cover for your situation and assist you in gathering and submitting the necessary application paperwork.
Be Careful When Placing Additional Life Insurance Through Your Superannuation
Life insurance is available to all Australians although you might be subject to certain restrictions or loadings depending on your age, health, gender and recreational pursuits. You are able to increase the life insurance cover you have included in your superannuation fund by contributing more of your earnings, or you can take out any extra cover you feel you need as a stand alone policy. It can be more affordable to take out life cover through your superannuation and it can be a more tax effective option.
However, if you do so you should be aware that superannuation funds operate under their own rules and getting access to the benefits is not always as easy as from a stand alone policy. This can be true as far as beneficiaries are concerned and it can also hamper access to income protection benefits under certain circumstances. It should also be remembered that income protection insurance premium payments are tax deductible at your marginal tax rate, a fact that could substantially lower your overall premium costs.
Finding the Right Life Insurance Cover in Australia: What to Look for
If you are looking to purchase a life insurance policy and not quite sure where to start, follow these few very simple tips to help you make an informed decision and obtain a competitively priced policy with adequate protection for your needs:
Consider your life insurance needs carefully
The first key step in buying life insurance is to fully understand what it is that you are looking to protect and match those needs with the right insurance product. If you are thinking of a policy that will provide financial assistance to your dependants in the event of your death, then you may want to consider term life cover.
If you are looking for financial protection in the event of a serious illness or injury, consider bundling your policy with trauma (for life-threatening medical events) or TPD insurance (for serious illness or injury that have rendered your ability to work again). Trauma and TPD insurance are both living insurance, which means that you don't have to pass away before a benefit payment is received. Many insurance providers these days offer options to bundle your term life policy with additional trauma or TPD cover, especially if you are looking for a comprehensive protection package.
Coverage for your income
On the other hand, it is beneficial to consider income protection insurance as an extra layer of protection on top of your term life policy. Income protection covers you for when you are ill or injured and cannot work temporarily, and provides you with a replacement income so that you can keep up with your financial commitments.
If you have a small budget to start off with, take the time to consider with life insurance product is most suitable to your current stage of life. Alternatively, you can also consult with a financial planner or an insurance consultant to guide you in the right direction. A consultant can utilise their knowledge of the market and find the best premiums for your policies and discounts.
Calculate the right amount of cover
Figuring out the appropriate amount of life insurance that you may need is another essential step to ensure you have the right protection in place. It is easy to overcompensate for how much protection you really need for your situation and end up paying far too much in premiums. On the other hand, not having enough insurance can put you and your dependants at risk of underinsurance, which could put your family in significant financial hardship in the future.
You can always use a useful tool such as life insurance calculator to give you an estimate on how much is required to cover your financial obligations. It is essential to use a needs based approach to make sure you find an appropriate level of cover to ensure your family is able to maintain their current way of living:
- Mortgage or rent: If you own your home, put aside an amount to pay off your mortgage or the number of years you want to cover rent for your dependants;
- Daily living expenses: Consider the day-to-day expenses that your family will have to meet, such as:
- The cost of food
- Buying groceries
- Utility bills; electricity, water, gas, telecommunication
- Home maintenance
- Insurance premiums; health, car, home and contents insurance
- Children’s education expenses: When putting aside an amount to cover your children’s education expenses, the number of children of you have and their respective age should be taken into consideration.
- Final expenses: There are certain expenses that your family will have to meet in the event of your death, such as medical bills (upon an injury or illness) or funeral costs. These expenses are often high and require immediate availability of funds. With life insurance benefit payment, you are making sure that your family won’t be out of pocket.
When in doubt, you can always ask for assistance from an insurance consultant who has the expertise and ability to advise you the appropriate cover based on your situation.
Compare multiple policies and read the fine print
To find a policy that offers adequate protection, it is essential to compare a variety of different policies from multiple providers. While the cost of the policy may be important to you, your decision should not be based solely on your monthly premiums. Taking this approach, you run the risk of being underinsured. Some life insurance plans may have different features, benefits and additional features that you can tailor to match your needs, which is why it is absolutely essential to read the policies’ Product Disclosure Statement (PDS) carefully. While some extra features and options may only be available by paying additional costs, you are making sure that you are protected should you or your family require that benefit if certain events occur.
Another important part of the PDS that you also need to assess is the policy exclusions. Understand the conditions of when the policy benefit is not payable. Failure to do so can affect the result of your claim. Ask questions to your insurance consultant if there are any terms and conditions that are not quite clear to you.
Choose a life insurance provider that can deliver its obligations to you
There are many life insurers in the Australian market these days and you want to make sure that the company you have chosen is able to fulfill its obligations to you or your beneficiaries in the event of a claim. There a few things that you need to look out for when comparing different insurance providers to choose the right one for you:
- Reputation of the insurance provider in the market: It is essential to do your research on the company’s history, profile, and the awards they have won in the past. Reviews from other customers are often helpful to give you an indication of the company’s conducts.
- Financial stability: Having the reassurance that your insurance provider will deliver what it has promised to do in the event of a claim cannot be based simply on blind faith. It is important to choose a company with financial strength that will continue to operate for many years to come. Some companies often make their annual financial reports accessible to the public, so that they are able to assess the financial strength of the company.
- Customer service: Having a team of professionals to provide you with exceptional service and assistance when you need them to can make all the difference.
- Claims process: Have a read through of customers reviews and complaints on their past dealings with the company at time of a claim. The process of a claim should be clearly laid out and straightforward.
Remember that life insurance is not a one-size-fits-all type of product. Everyone will have different sets of needs on what they require from their life insurance policies. Therefore, it is essential to gather and assess all the information you may need to help you make an informed decision on the life insurance policy that is right for you.