There’s a common perception that life insurance companies avoid paying claims. They make it difficult to access your benefits and require a lot of proof and paperwork at claim stage.
In fact, 92% of all life insurance claims are paid in the first instance¹. This high rate of claims payout is common amongst all the leading insurers in Australia.
As long as you fulfil your duty of disclosure when you apply for cover, and you’re covered for the medical condition you’re claiming for, you can be confident that your claim will be paid.
2. I don’t need insurance because I’m still young and don’t have a family to support.
Life insurance isn’t only for repaying your debts and protecting dependents. It’s also about protecting yourself.
Will you be able to support yourself if you became ill or disabled, and couldn’t work? Who would you ask to bear the financial burden? Or would you rather have income protection to help you manage on your own?
There are benefits to applying for life insurance when you’re young and healthy. It’s generally cheaper and you would usually pass all medical tests as you are healthy. If you apply for cover when you are older, the premiums are more expensive and you may have medical conditions that will increase the costs further.
3. If my health changes I won’t be covered
Your cover will not change once your insurance policy is put in place even if your health deteriorates.
In fact, you don’t even need to tell your insurer about a change in your health unless you intend to make a claim.
Should you change occupation though you will need to notify your insurer and refer to the Product Disclosure Statement and Policy Terms for details for any changes to your cover.
4. There are too many medical tests to complete
Most life insurance products sold do require some medical tests before you get covered. It may usually be as simple as one blood test and a GP examination.
If you have an existing medical condition, you may be asked to provide extra information about your condition.
The purpose of these tests is to ensure your cover accurately reflects your health and medical history.
You generally won’t be covered for pre-existing conditions, so it’s important to establish upfront what those pre-existing conditions are. It’s important to answer all questions accurately upfront so any pre-existing conditions can be reviewed by your insurer for any impacts to your cover or ability to obtain cover.
That way you know exactly what is or isn’t covered under your policy.
5. Premiums always increase and become expensive
‘Level premiums’ are designed to save you money over the long term as the premiums do not increase as you get older. ‘Stepped’ premiums, however, do increase as you age and will be more expensive at older ages.
Level premiums are calculated based on your age when the cover started, not at each year. This means your cover is more expensive than ‘Stepped premiums’ at the beginning of your policy, but generally will be cheaper over the life of your policy. The graph below shows the premium pattern for stepped and level premium policies.
6. I’ll be stuck paying for cover I don’t need
Life insurance is designed to change as your life changes. It is not meant to be a ‘set and forget’ exercise.
You may want to increase your cover if you get married and have children or increase your mortgage.
Similarly, you may want to reduce your cover if your children have grown up or you’ve paid down your debts.
At Moksh, we can help you work out how much cover you need at any given time, to make sure you’re not paying for any cover you don’t need.
7. I have sufficient cover in my super
Over 70% of Australian life insurance policies – more than 13.5 million separate policies – are held through superannuation funds*.
Insurance in super was designed to give basic insurance cover to all Australians that have a super fund. While this cover is great to have, many of these policies provide only the minimum level of cover employers have to offer, which isn’t enough for most people. The benefits offered are not as comprehensive as retail products. Claim payments also need to meet the strict Superannuation Industry Supervision (SIS) Act requirements to release the proceeds of the insurance policy.
In fact, Rice Warner estimates that the median level of cover in superannuation meets only 60% of needs for life cover (or just 38% for families with children), 13% for TPD cover and 17% for income protection.
*Basic needs met by life insurance cover in super: Insurance through superannuation, 2016, www.ricewarner.com/insurance-through-superannuation/
8. I’ll be covered by workers’ compensation
Workers’ compensation provides some protection for work-related accidents or injuries only.It doesn’t cover any 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.
9. Only the main breadwinner needs life insurance
Having insurance for the breadwinner is vital for any family’s financial security. But if a non-working or lower income-earning partner became seriously ill or injured, your family would still need assistance to meet daily living expenses and the cost of medical treatment.
The breadwinner may also need to reduce their working hours to look after their partner or young children, or employ outside help.
Either option could prove very expensive, which is why both members of a couple should consider life insurance – regardless of how much they earn.
10. Investing my money is better than buying life insurance
Whilst investing your money and self-insuring yourself is the pinnacle of your wealth journey, not many people achieve this goal. Until you are in a position where your assets can generate sufficient income to pay for your liabilities and your living expenses, the need for life insurance is crucial.
Life insurance can provide you a safety net until such time you are ready to self-insure. Holistic financial planning also includes investment in growing assets, such as property and shares, balanced with protection against significant and unforeseen losses, as provided by life insurance.
We’ve created a quick, no-commitment, quiz to help you assess the amount of cover you need and access free quotes. You can also contact us for a free 15 min consultation at any time – we understand these are big picture ideas at play and thinking about insurance can get intimidating.
Protecting yourself and your family shouldn’t be difficult. That’s why at Moksh, we put your interests first.
