Myths about life insurance
Myth 1: Life insurance companies don’t pay claims
There’s a common perception that life insurance companies will do everything in their power not to pay a claim. In fact, 92% of life insurance claims are paid in the first instance. The term life insurance relates to all life insurance products such as Life cover, Income Protection, Total & Permanent Disability (TPD) and Trauma insurance (sometimes known as Crisis insurance).
As long as you fulfil your duty of disclosure when applying for the cover and you’re covered for the medical condition you’re claiming for, you can expect for your claim to be paid.
Myth 2: I won’t be covered if my health changes
Once your cover starts, you are covered for the life of the policy. The only time the life insurer can cancel your policy is due to non payment, policy expiry age or if you request for the policy to be cancelled. Your policy and premium won’t change as the result of your declining health should that occur.
Myth 3: You have to do lots of medical tests to get covered
Some life insurance policies sold through financial advisers like those at theinsurancequoter will require some medical tests before you get covered but may be as simple as a blood test and a GP examination. Generally these tests will only be required if the person is over a certain age, has pre existing conditions or applying for a large amount of cover. Should the insurer apply any exclusions or loadings, these will be communicated with the client first and be required to be signed off on.
Myth 5: Level premiums don’t go up
Level premiums are calculated based on your age when the cover started, not at the time of anniversary, which means premiums are generally averaged out over a number of years. This means they are more expensive than ‘stepped premiums’ at the beginning of the policy, but generally cheaper over the life of the policy. This also depends on the age of the insured person.
It’s important to note that level premiums may increase at the policy anniversary if this insurer has repriced their in-force policies. This has happened with many life insurers recently as they have increased both stepped and level premiums. Other factors that impact premiums are claims trends in the Australian population as well as low interest rates.
Whilst level premiums may still be suitable for some clients, it’s best to talk to a financial adviser who can help you plan on which way to go which depends on a number of factors.
Myth 6: The cover in my super is enough
Over 70% of Australian life insurance policies are held through superannuation funds. Whilst this cover is great to have, many of the policies only provide the minimum level of cover which isn’t enough for the majority of people.
Rice Warner estimates that the medium level of cover in superannuation only meets the 60% of the required amount of insurance for life cover, 13% for TPD insurance and just 17% for Income Protection.
Myth 8: I’ll be covered by my workers’ compensation
Workers’ compensation provides some protection for work related accidents or injuries but it doesn’t cover most illnesses, nor does it cover anything that happens to you when you’re not at work.
Even if you are covered by workers compensation, the benefits are typically capped in terms of the amount and duration of payments which means the cover could fall well short of what you really need.
Myth 9: Only the main breadwinner needs life insurance
This is a common myth that I’ve heard from many clients. Whilst the main breadwinner is vital to any family’s financial security , both members of a couple should consider their various life insurance options regardless of their role.
Imagine a breadwinner had to reduce their hours to look after a sick partner or to replace their partners role in the home. If a non working partner or lower income earning partner became seriously ill or injured, their family would need a lot of assistance to replace their services.
If you’d like to discuss any of the content in this article and how it may apply to you, please give us a call on 1800 737 926 or fill out our contact form online.
The information provided here is general only and does not consider your personal objectives, financial situation or needs. Before you decide to purchase a product, it is important to read the relevant PDS.
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