Reviewing your cover when life changes

The only constant in life is change, which is why life insurance is designed to be flexible. Here are five ways to review your cover to make sure it always suits your needs, plus the questions you should be asking yourself every 12 to 18 months.

As we move through life, our circumstances and goals will evolve and change. That’s why it’s important to review your insurance cover every 12 to 18 months so you can adapt it to your changing needs. A financial adviser can help you assess and adjust your level of cover to ensure it’s always a good fit for you.

Here are four things to consider when reviewing your cover.


1. Check you’re still covered for the right amount

The premium you pay is directly linked to the total amount you’re insured for, so it’s important to check you’re covered for the right amount. When you’re deciding how much life cover to get, you should consider how much money you or your dependants will need.

You’ll want to consider costs such as paying off a mortgage, credit cards and other debts, childcare, school fees and ongoing living expenses. And remember, there may also be some incoming funds from your super, savings, the sale of investments or your leave balance that you’ll want to factor in too.


2. Choose between stepped and level premiums

Most policies offer you a choice of premium options so you can manage the costs of your cover over time:

  • Stepped premiums are calculated each year based on your age. They start off lower in cost and increase as you get older.
  • Level premiums are averaged out across the duration of your cover. They generally start off higher in cost but end up being cheaper in the long term.


The option you choose can have a significant effect on the cost of your policy over your lifetime. If you plan to keep your policy for longer than 10 or more years, level premiums may save you money over the life of your policy. But everyone’s situation is different, and the right choice for you depends on your unique circumstances, so it’s a good idea to seek professional advice.


3. Choose whether to apply automatic indexation

Over time, inflation can eat away at the value of your insurance payout, turning a generous amount of cover into something less than adequate. To help stop this from happening, many insurance policies feature automatic indexation that increases the amount of your cover each year to help safeguard you from inflation.

However, that will also mean your premiums increase in step with your cover. So, if you’re concerned about the cost of your policy, or you think your need for protection will decrease over time, you may want to consider declining inflation protection increases. This can be done on year-to-year basis or permanently by contacting your insurer or your financial adviser.


4. Check whether you’re paying unnecessary loadings

Loadings are extra amounts added to your premium if there are extra factors putting you at risk of illness, injury or death– like smoking, dangerous hobbies or occupations, or a high Body Mass Index (BMI). This means you pay a higher premium than someone who doesn’t have these risk factors.

So, if your health improves, or you’ve stopped smoking or base jumping, you should call your insurer or your financial adviser to find out whether your loading can be reviewed – which could make your policy more affordable.


Ask yourself these questions when reviewing your cover

Every 12 to 18 months, we recommend asking yourself the following questions to see if your cover still suits your needs.

  • Have you welcomed any new members to the family or taken on new responsibilities such as caring for an older relative? If so, you might want to add a new beneficiary to your policy. Or you might consider increasing your amount insured to cover your growing family’s future needs and your increased financial responsibilities.
  • Have you changed jobs or got a promotion? If your income has changed, your future needs have likely changed too. This is especially important if you’ve got income protection. That’s because your benefit amount and the premium you’re paying are directly linked to the personal income that’s recorded on your policy. If your income has reduced you want to avoid paying more in premiums than you need to – so make sure your cover is right for your current income.
  • Have you paid off any large debts? If you’ve paid off a large debt like your mortgage, congratulations! It may also mean you can reduce your insurance cover, since that’s one expense you and your family won’t have to worry about in the future.
  • Have you taken on any new debts? If you’ve taken out a loan to buy a house, do a renovation, start a business or just go on holiday, then it’s important to make sure your insurance will still cover your debts should something happen to you.


Speak to your Pinnacle Adviser…

Your adviser can help you understand your current financial situation, as well as your goals for the future, so you get the right cover for your needs. They can structure your cover in a way that gives you the best value for money and suits your cash flow and tax objectives.


Source: Zurich Australia