Peter LynchThe MoneyTalk Blog
The 2016 Australian Insurance Awards, designed to celebrate the achievements within the Australian Insurance industry, were held at the swanky harbour-side hotel Pier One last week.
There was TAL, Suncorp, Auto & General, BT Financial, AIA and newcomers to the awards – Club Marine.
For the rest of us not invited to this slap-up affair, the biggest question is: should we buy life insurance at all?
First, there has been the battle by sellers to maintain commisions of 120 per cent (yes! more than the cost of the insurance policy!) plus what are called “trailing commissions” – paid for as long as you stay covered – of 80 per cent.
For those who’ve left their calculators at home, that means only 20 per cent is left to cover your life. Gives you pause for thought, doesn’t it.
Then there have been the frightening figures and heart-wrenching stories of families who have lost loved ones – only to discover their insurer has changed the terms and conditions. You know, those vast pages in micro-type none of us ever read.
The Sydney Morning Herald’s Adele Ferguson reported: “After wading through 120 pages of ASIC’s investigation into life insurance , the key conclusion is this industry has serious issues and some insurers are making cannon fodder out of customers when assessing claims.”
ASIC had been asked to look into The Commonwealth Bank’s CommInsure and 14 other companies.
One of the more shocking findings was that the data and information on individual insurers was not ‘‘ entirely reliable or consistent’’. Even more sinister was the issue of conflicts of interest.
ASIC said: ‘‘It could be an issue for insurers with incentives and performance measures for staff based on declined claim rates’’ .
Ferguson wrote: “It is chilling that insurers have been allowed to incentivise their claims managers to reject claims. Customers don’t stand a chance.
“At one end advisers are flogging them products and raking in whopping up-front commissions and at the other end, if that person gets sick and lodges a claim with one of the insurers that incentives their claims managers to reject claims, then they are subject to a second conflict ”
Ok, enough of the bad news.
Now let’s look at the other side of the story.
Life insurers provide protection against financial hardships that arise from death, disability, illness or injury. Making sure money continues to flow through regular income is usually the main aim, so a disaster doesn’t turn into a catastrophe.
Hundreds of families – particularly small business people but also ordinary folk – have had tragedy made more bearable because of this industry.
According to most experts – actuarial firm Rice Warner, for instance – Australia is woefully underinsured, despite superannuation policies usually having some kind of insurance (which can expire aged 65).
The business is worth $62 billion – so it’s a serious financial player.
So should you be covered?
If you’re a family, running a business or have debts, you certainly should be. If you’re a boomer with a stash of savings and living the high life in retirement, probably not.
How do you know what’s best for you? The answer is: you do (sorry!) need to read the fine print. That nice young man at the bank is still incentivised to sign you up, and may eve be incentivised to “churn” you – talk you into a new policy so he gets bigger commissions.
This will change soon. But right now, it still persists.
And if you are buying a new policy, please DON’T be tempted to tell porky pies on the form. You’ll almost certainly be found out when you need that insurance most, and it could invalidate a claim.
And please read the policy – or at least the cheat sheet – before you sign. Check the insurer out on line and use comparison tables where you can. We like Lifebroker.
Finally, if you’re keen to know who won those swanky awards, the answer is: BT Financial had the “Best claims outcome” (though after reading the ASIC report, we’re not sure if that means no claims at all!).
But they were also the Life Insurance Company of the year, so they must have done something right!
When should you buy life insurance?
There’s no fixed formula to determine the right time to obtain a life insurance policy. After all, it is your personal decision.
But if you have a family that still depends on you, a significant mortgage, or you are worried about what could happen if you are no longer fit to work due to sudden sickness or disability, then it is ideal to buy life insurance.
So when is the best time to buy life insurance?
People tend to think about life insurance during important life stages such as starting a business or expecting a child.
Life changes usually result in people thinking seriously about financial responsibility, leading to taking important decisions to secure their personal finance.
Life changes are key motivators for people buying term life insurance cover.
Below are examples of important life circumstances that usually trigger the purchase of insurance:
Starting a Business
As an entrepreneur, you can buy life insurance coverage so you can have enough funds for the business to continue in case you become ill or in the event of your death.
Expecting a Child
Welcoming a new member of the family comes with huge responsibilities, and purchasing life insurance with life and income protection can be vital.
Getting a Mortgage
Many Australians need a mortgage to buy a house, and life insurance can help your loved ones pay for the property and even sustain living expenses in case you are no longer fit to work or you suddenly pass away.
Marriage or Divorce
Tying the knots of matrimony comes with new responsibilities and commitments, and you should get life insurance with your spouse as your beneficiary. On the other hand, if the marriage fails, then life insurance can provide a financial security net for children.
Before You Sign a Life Insurance Contract
Getting life insurance is vital, but you should still set aside enough time to do your research and compare life insurance options available for you.
There are many types of life insurance plans and you may need the help of a financial planner to choose the best one based on your needs and personal circumstances.
An online life insurance calculator can also help you estimate the cost of premiums as well as the lump sum benefit you may receive once you file a claim.
Life insurance is a crucial part of financial planning so be sure to choose wisely.
For more information on life insurance CLICK HERE