Car, home, contents and health insurance are often the most considered types of insurance, but how often do you consider life insurance, and what are some of the objections?
When considering insurance, most are likely to first think of car, home, contents and health insurance. Life insurance is an afterthought, and based on Rice Warner’s report, Underinsurance in Australia 2017, we continue to see Australians significantly underinsured[1].
In many cases, we find people are objecting towards obtaining a life insurance policy, however while their concerns are legitimate, the reality may be a different story.
Below we highlight 6 objections to insurance, and some useful pieces of information that might help combat some of your objections.
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It’s too expensive
Often, pricing is a factor when considering any purchase, including an insurance product. However, you do have several options to help combat any pricing concerns, and once utilising these options you may find that the price is not as high as expected.
Essentially, what cost do you place on yourself? How would you survive financially and mentally if you were to unexpectedly fall sick or injured? How would you supplement any possible loss of income, pay your mortgage or unexpected expenses?
Like many of the insurance providers out there, they understand that pricing is an important factor for individuals, and that’s why they’ve implemented several options to help with affordability.
As an example, AIA Australia offer several discounts from bundling policies together (which include their various Priority Protection and AIA Health insurance products), and AIA’s science backed health and wellness program, AIA Vitality.
You may be eligible for the following discounts:
If AIA Vitality is attached to a Priority Protection policy, the initial discount will be applied to the premium (but not the policy fee) as follows:
- Lump sum – 17.5%*
- Income Protection (IP) / Business Expenses – 7.5%
*The 17.5% discount is only available for new applications which include an AIA Vitality membership. When a new AIA Vitality membership is added to an existing policy, only a 12.5% discounts applies.
If you also take out an AIA Health insurance policy with AIA Vitality in addition to a Priority Protection policy, you can receive an additional 5% discount on your Priority Protection Lump Sum, IP and Business Expenses premiums (not including the policy fee).
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I have insurance in my superannuation
While many people have insurance inside superannuation, the Government’s recent passing of the Protecting Your Super (PYS) and the Putting Members’ Interest First (PMIF) bills, may have impacted how much insurance you still have within superannuation. You should consider:
- How much insurance cover you have inside superannuation.
- IP premiums inside superannuation is not generally tax deductible.
- What limitations are in place for the release of funds for policies inside of superannuation?
- How quickly would you receive a monthly benefit if you were to submit a claim? It can sometimes take longer to receive monthly benefit payments as you first have to be approved by the Trustee.
- Is the waiting and benefit period on your IP adequate? IP benefits in super sometimes only lasts two years. Consider a separate IP policy with a waiting period of two years and a longer benefit period to extend your IP cover.
- What type of Total and Permanent Disablement cover (Own or Any) are you eligible for?
- Insurance inside superannuation can erode your retirement savings.
Did you know?
On average, families with children, where the parents are 40 years old would require 5.4 times their family’s annual income in basic life cover.
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I don’t have dependants or many debts
While you may not have any dependants now or much in terms of debt, that’s not to say your circumstance won’t change in the future. You may find yourself starting a family sooner than expected, gaining promotions in your job leading to more disposable income and bigger debts.
You may believe that you will receive help from the government in the event you are sick or injured for extended periods of time. While the government does provide some financial assistance, is the amount provided sufficient to support your needs? For example, the Disability Support Pension (DSP) for someone who is over 21, single and without dependants is $944.30 per fortnight[2].
Did you know?
As of May 2018, the Australian Bureau of Statistics (ABS) noted that the average weekly earnings for 21 to 34 years olds is $1,127.60. Would the fortnightly DSP payment be enough for you to survive financially?
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I’m young and healthy
The best thing about being young and healthy when applying for insurance cover is that premium rates are generally lower, with potentially less underwriting requirements. Also, the likelihood of having exclusions or premium loadings applied or being declined is much lower than that of someone older, since younger people tend to have less health issues. As you age your health is more likely to decline, which would increase the risk of having exclusions or premium loadings applied if you apply for insurance later in life.
Did you know?
It is estimated that 1 in 2 Australians have at least 1 of 8 selected common chronic conditions: arthritis, asthma, back pain, cancer, cardiovascular disease, chronic obstructive pulmonary disease, diabetes and mental health conditions. Collectively, these conditions accounted for 61% of the total disease burden in 2011 and contributed to 87% of deaths in 2015.
Australia’s health 2018 – https://www.aihw.gov.au/getmedia/7c42913d-295f-4bc9-9c24-4e44eff4a04a/aihw-aus-221.pdf.aspx
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Workers compensation will cover me
Workers compensation is a form of insurance payments to employees, which covers their wages and medical expenses, however this is only available if you have become sick or injured due to your work[3]. Furthermore, the rules around workers compensation differ from each state. For example, in NSW, there are two entitlement periods (0-13 weeks and 14-130 weeks), where after 130 weeks, your payments will cease unless:
- You have been assessed by the insurer as having no current work capacity, and is likely to continue indefinitely, or
- You’re working at least 15 hours per week and earning at least $196 (indexed annually), and that is likely to continue indefinitely, AND
- You’ve completed an application for continued weekly payments after 130 weeks form and this has been confirmed by the insurer.
NOTE: after 260 weeks, payments will cease unless you have been assessed as having an agreed permanent impairment of more than 20 per cent[4].
Did you know?
- The median compensation paid for a serious claims was $11,500.^
- More than 50% of serious accidents happen away from work*.
^Preliminary data subject to revision in subsequent years as further claims are finalised Australia Workers’ Compensation Statistics Report 2016-17 – Safe Work Australia
*Australian Bureau of Statistics National Health Survey – Summary of Results, Australia – 4364.0, 2004-2005. https://www.humanservices.gov.au/individuals/enablers/paymentratesdisability-support-pension/39881, as at 9 July, 2019.
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Doesn’t my private health insurance pay for me?
Private health insurance is a worthwhile consideration as it provides you with more options when it comes to medical options, such as being able to choose your doctor. Private health insurance can cover a lot of costs associated with choosing a private health option, however there is a still an out-of-pocket cost that you may be required to pay. In 2018, the Consumers Health Forum of Australia (CHF), completed a survey of 1,200 respondents. The survey found that more than a quarter of respondents’ out-of-pocket expenses for breast cancer had exceeded $10,000[5].
As previously mentioned, if you also take out an AIA Health insurance policy with AIA Vitality in addition to a Priority Protection policy, they can receive an additional 5% discount on their Priority Protection Lump Sum, IP and Business Expenses premiums (not including the policy fee).
[1] https://www.ricewarner.com/life-insurance-adequacy/
[3] https://www.fairwork.gov.au/leave/workers-compensation
[4] https://www.sira.nsw.gov.au/claiming-compensation/workers-compensation-claims/weekly-payments
[5] https://chf.org.au/publications/out-pocket-pain
Insurance can be a complex area to get your head around and we do encourage you to speak to your Pinnacle Advisor to discuss your own personal needs around Income Protection, Life Insurance and TPD cover.
Source: AIA – May 2020
