Separating fact from fiction
Okay, so life insurance isn’t the sexiest subject in the world. But it’s still important. To get the most from it (and maybe save some money in the process), it helps to know the facts and not rely on old, inaccurate or biased information. The Insurance Council of Australia’s Understanding Insurance website is one great resource for answering any questions you might have. You should also beware of those pesky life insurance myths that frequently get tossed around. Here are our favourites:
Myth #1: I’m already covered by the life insurance that’s part of my superannuation fund.
This is a common misconception. Many Australians aren’t really sure what their super fund insurance covers. Insurance through your super may offer a default death cover, but may not provide access to other important types of cover like Trauma, TPD (Total and Permanent Disability) or Children’s Cover.
Never just assume that the generic life insurance supplied by your super fund is adequate. Always check to see what your level of cover includes – you may be surprised at how basic it is. Because everyone’s needs are different, make sure you’re getting the level of cover that’s exactly right for you.
Myth #2 – It’s okay, I’ve got private health insurance
If you’ve opted to purchase private health cover, good for you – there are many advantages. Whatever level of cover you choose, you’ve taken an important step in providing valuable protection for yourself and your loved ones against medical expenses associated with injury or illness. But private health cover doesn’t help you replace lost income, cover debts or provide financial security for your family if you should unexpectedly pass away or become unable to work through injury, illness or disablement.
Will your private health policy cover the total costs of long-term treatment or post-injury rehabilitation? What happens if your recovery takes much longer than expected and your ability to provide for your family is affected? The best solution is a total protection plan that includes private health cover as well as adequate life insurance. Total and Permanent Disability Cover and Trauma Cover can easily be added to your standard life insurance for extra protection if you feel you need it. Private health cover is great – but the protection it offers has clearly defined limits.
Myth #3 – Insurers can’t be trusted
In this century, we no longer have to worry too much about door-to-door insurance salesmen trying to pressure us into buying flood insurance when we live on a hilltop or some equally dodgy nonsense. The modern Australian insurance industry is highly regulated, tightly controlled and very transparent, and it’s now incredibly easy to check out a specific insurer’s reputation online. Checking out how many independent awards a particular insurer has won gives a reasonable indication of their overall quality. Annual awards for insurers (and many other industries) can be found on the Canstar website, for example. Independent, third party review sites are also available for many insurers. These will give you a pretty good idea of general customer satisfaction levels.
The Internet has done a lot of great things for people looking to compare insurers. It has made it easy to get quick online quotes, it has made comparing insurers simpler and it has virtually guaranteed that any insurer who delivers poor service or overpriced products won’t last long – because in cyberspace, there’s no place to hide.
Myth #4 – Cheaper insurance must not be good insurance
Some insurers are cheaper because they’re more careful about who they insure. For example, they may choose not to insure riskier drivers. They might choose not to insure certain events (floods in specific regions, for example). When you shop around for insurance, you need to compare price and policy options carefully before making a decision. And (as insurers will tell you over and over again) always read the product disclosure statement relating to your cover, so you know what you’re insured for and what you’re not. “I didn’t get around to reading the fine print” isn’t a valid excuse for not understanding your insurance – and can lead to unpleasant surprises down the track.
If you run across an insurance quote that seems way too good to be true, make sure you’re not falling victim to a scam. Is the insurer well known or did the company just pop up out of nowhere? Does the insurance company even exist? Warning signs of people pretending to be insurers include:
- Insurance companies with names you’ve never heard of
- Policies that are priced unbelievably cheaper than comparable cover
- Agents who want you to pay for premiums in cash or ask you to write a cheque made out to them personally (not the company)
- Agents who give vague answers to obvious questions
These days, insurers normally offer online or automatic payment options like credit card, PayPal or direct deposit, so you know your premium payments are going where they’re supposed to. But another danger to watch out for is the old ‘fake insurance website’ ploy. In one high profile case in the UK, a man conned 600 drivers into paying for worthless car insurance policies by setting up 4 fake (but authentic-looking) websites. He made over $1 million (AUD) before being caught, and many victims only became aware of the scam after police seized their cars for being uninsured.[i]
Always beware of emails that ask you to ‘click on this link to update your details’ – they may lead you to a bogus website that’s aiming to extract private financial information from you by stealth. The website may look very much like the real thing, but isn’t. When in doubt, contact your insurer directly.
Myth #5 – All life insurance is the same
Alas, there’s no one-size-fits-all formula for determining the ideal life insurance cover for your needs. Every individual and family has different requirements. But things you might want to factor into the equation include your current and future financial obligations, the debts you’d like to pay off and what your family needs to financially cope if you pass away or can’t work. Think about what happens if a sudden debilitating illness strikes or you become disabled. What are your existing financial resources and ongoing household expenses? These are all relevant considerations. Work with your insurer so you get the cover you need at a price you can handle – and that gives you the peace of mind that quality insurance brings.
Myth #6 – Life insurance just isn’t worth bothering about
Life insurance is one of those less-than-thrilling subjects that normally don’t rate too highly on many people’s priority lists – but should. Having the appropriate life cover can have a major (and potentially life-changing) impact on you and your family’s financial future.
Australians have a bit of a problem with life insurance. Research by AFA (the Association of Financial Advisers) shows we believe that insuring our cars, homes and health is more important than insuring our lives. Of those of us who already have life insurance, only 29.3 per cent rate it as ‘extremely important’. For those without life cover, the figure is a dismal 5 per cent. The same research also shows that only 2 out of 10 Aussies receive life insurance-related financial advice[ii].
If a parent dies or can’t work because of serious injury or illness, the typical Australian family will lose half (and in some cases more) of its income. Think that kind of situation is too rare to worry about? Think again – it will happen to 1 in 5 working age parents in this country. However, with adequate life insurance, the other partner can repay existing home loan debt and invest the remainder to generate an income that replaces 80-100 per cent of the original income[iii].
When it comes to life insurance, our ‘she’ll be right’ attitude just doesn’t match up with the facts. Here are some statistics worth pondering:
- Half of all Australians are underinsured by $100,000 for life insurance
- 74 per cent are underinsured for TPD (Total and Permanent Disability) cover
- A quarter of men and a third of women will suffer cancer at some point in their lifetime
- 81 per cent of us believe life insurance is too pricey, but 61 per cent overestimate the cost
- More than 1600 people die on Aussie roads each year
- 41 per cent of us think ‘life insurance is too complicated’
- 63 per cent of Australians with a partner report that they haven’t discussed life insurance with their other half, with 29 per cent feeling it’s ‘difficult’ or ‘unpleasant’ to talk about
- Household debt in this country grew twice as quickly as the value of our household assets during the past 18 years4
Myth #7 – Everything will be fine; the government will look after me and my family if something happens
Many Australians incorrectly believe that federal government laws protect them financially in the case of premature death, injury or illness. While it’s true that benefits through Work Cover, the Widow Allowance, Centrelink’s Disability Support Pension and other support services can help, these payments have very specific eligibility requirements and are rarely enough to support a family5. For up to date information on payments for people living with disability, illness or injury, visit the Department of Human Services website. The bottom line is this: money received from government benefits may cover the barest essentials, but unlike a life insurance policy, it won’t enable your family to maintain their current lifestyle and stay on top of financial obligations if the unexpected happens.
Worker’s compensation also has obvious limitations. It only applies to illnesses directly caused by your employment or injuries/accidents that happen during working hours. It’s irrelevant in the case of injuries or illnesses that occur away from your workplace.
Myth # 8 – I’ve had some health issues so I won’t qualify for health insurance
Insurance companies are all different in how they approach the issue of pre-existing medical conditions, and many have become more versatile in their ability to accommodate customers with various health issues. When in doubt, contact them directly. Just because one decides not to provide cover doesn’t mean the next won’t come to an entirely different conclusion about your insurability. In some cases, you may even be able to avoid a medical exam.
When applying for cover, the important thing is to be honest about your own medical history and your family’s medical history. When looking for a company that will insure you despite your known medical issues, it’s simply a case of ‘if you don’t succeed the first time, try and try again’. The insurance industry is constantly evolving and trying hard to meet the needs of customers both with and without pre-existing medical conditions. In the case of more severe and ongoing health issues, an insurer might offer insurance with specific exclusions and/or an increased premium. If you’re not happy with what’s being offered, keep shopping around for something better. Insurers need to maintain a sustainable business, but they will assess your situation on an individual basis and provide appropriate cover for you if they can.