AUSTRALIANS are ditching life insurance in droves because of huge rises in the premiums they pay.
It is estimated that one-third of life insurance policies are being cancelled within six years, and insurance specialists warn that families risk financial ruin by quitting without considering cheaper options.
“People think it’s outrageous,” certified financial planner Patrick Canion said of the surge in the price of insurance.
“Insurance companies have hugely increased premium rates because they are losing money.”
Insurers do not release details about cancellations, but independent figures paint a disturbing picture.
Recent research by Rice Warner found that life and disability insurance premiums climbed 215 per cent in four years and income protection premiums jumped 82 per cent, while new figures from industry regulator APRA show that overall premium income has slid almost 20 per cent in two years. If policy numbers were steady, premium income should have climbed strongly.
Life insurance is an umbrella term for four types of insurance: death cover, total and permanent disability cover, trauma insurance that pays out for specific events such as cancer or heart attack, and income protection insurance.
OmniWealth senior financial planner Andrew Zbik said some financial planners had put clients into policies that were cheap at the beginning but the premiums quickly rose as they aged.
“I see a lot of people who have been recommended insurance by another planner, and they say ‘I don’t know why I have this much insurance — I’m going to cancel it and save some money’,” he said.
Mr Zbik said people were more likely to cancel income protection cover than life or TPD, despite the fact that an income protection claim was much more likely.
“In the event of injury or illness you can lose your income and be forced into a fire sale to cover debts — some people are looking at bankruptcy.”
Catapult Wealth director Tony Catt said he believed the insurance trend mainly reflected ageing Baby Boomers reaching a stage where they no longer needed cover.
“All the premium rises have done is speed up the process of them reaching a conclusion of getting rid of life insurance,” he said.
“They have reached that point in pain faster than they otherwise would have.”
Mr Catt said holding life insurance within a superannuation fund could make it more affordable.
SuperRatings research manager Kirby Rappell said policy numbers were not publicly disclosed.
“The key reason for the rise has been an increase in the number of claims received, driven by greater awareness of insurance in super by consumers,” he said.
Mr Canion said moving life insurance into superannuation meant “at least it’s not coming out of their pocket”.
“People should also reassess how much cover they need. It may have been five years and they have repaid more off their mortgage (so they need less insurance),” he said.
“Check your premiums are competitive but don’t necessarily go chasing the lowest price,” he said.
Originally published as Life insurance dies as premiums soar
Online Source: www.news.com.au