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Why life insurance premiums have gone up

Written and accurate as at: Jul 05, 2022 Current Stats & Facts

Most of us expect some sort of annual increase in our insurance premiums. Insurance companies do this to ensure premiums and policies keep pace with inflation. However, since the start of the pandemic, life insurance companies have been faced with new challenges that have hindered their performance.

As a result, premiums for income protection, total and permanent disability (TPD), death and trauma cover have increased by up to 70 per cent*. Below we explain some of the reasons behind the life insurance premium price surge and some of the options you have when reviewing your policy.

When life insurance companies aren’t using money from premiums to pay out on policy claims, that money is usually being invested to generate returns (additional revenue). Insurance companies rely on this revenue to remain profitable and sustainable, and to ensure they have enough funds to cover future potential insurance payouts. For many life insurance providers, the past two years have seen intense periods of market volatility, significantly impacting investment returns, and therefore, profit margins.

The pandemic also created rising unemployment and therefore higher levels of financial household stress. This resulted in an increase in premium holidays, cancelled policies, and a significant increase in mental health claims#. These effects combined have, according to one research report^, led to a 29 per cent decline in industry revenue in 2020-21.

In October 2021, the Australian Prudential Regulation Authority (APRA) took steps to support the sustainability of the sector, reducing income protection payouts and tightening the definition of who is eligible to make a claim. This means insurance policies today will generally offer less benefits than previously. Therefore, it’s important to understand how any changes to your policy can affect you.

A word of caution about making changes to any insurance policy

Making any changes to your life insurance policy can impact your eligibility to make a claim, or how much benefit you may receive. Before making any changes to an insurance policy, it is extremely important to assess your personal circumstances and needs to ensure any changes you make are in your best interests. For example, it may be in your best interests to leave your existing policy as is, and find other areas in your budget to reduce your outgoings.

Reassessing the cover you need

While life insurance may often be viewed (by some at least) as a set-and-forget endeavour, it’s a good idea to check in on your policy every couple of years, to make sure it still meets your needs. Small, incremental changes to your circumstances over time can make a big difference to the type and level of cover you may need. Here are some scenarios where it may make sense to reassess your cover:

  • Changes in your level of income or employment circumstances
  • A sizeable decrease (or increase) in your mortgage balance or other debt you have
  • A significant reduction in monthly expenses (eg children moving out of home)
  • Changes to the value of your assets (eg a substantial increase in the value of a property).

Putting your personal and financial circumstances under the lens is the first step in reassessing whether your existing types and levels of cover are still appropriate for you. 

Revisiting your existing policy features

If you’ve looked at your circumstances and decided there is a compelling reason to change your level of cover, you may consider, for example:

  • Changing the type of benefit you receive
  • Extending the waiting period for a claim
  • Reducing the benefit period or sum insured
  • Removing optional ‘add ons’ from your policy.

Bear in mind that every insurance policy is different, and the policy features and benefits will also vary from insurer to insurer. Therefore, it’s vital to understand what your current policy offers, and how any potential changes could impact you. The ultimate objective is making sure you and your loved ones are sufficiently and appropriately protected.

Shopping around for a more competitive policy

If you believe you aren't getting the best value from your insurance provider, one option is to shop around. It's worth being aware that the October 2021 changes made by APRA have led to policies becoming less competitive. When comparing policies, not all policies of similar level are created equal, therefore it’s important to consider comparing with those that are like-for-like with your current policy.

Making changes to your life insurance policy is a big decision, and one that can significantly impact your future eligibility or level of potential payout. Many insurance policies are only available through an adviser so please get in touch with us if you wish to talk through your options.


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