23 Mar Know where you stand: Myths about life insurance
Here we dispel some common myths about life insurance to help you make informed decisions about your cover.
Myth # 1 – Life insurance companies don’t pay claims
There’s a common perception that life insurance companies will do everything they can to avoid paying claims.
In fact, 92% of all life insurance claims are paid in the first instance¹. And OnePath Life has paid 93% of claims for policies taken out with a financial adviser during 2018.
As long as you fulfil your duty to take reasonable care not to make a misrepresentation when you apply for cover, and you’re covered for the medical condition you’re claiming for, you should be confident your claim will be paid.
Myth # 2 – I’m young and don’t have kids or a mortgage, so I don’t need it
Life insurance isn’t all about providing for debts and dependents. It’s also about looking after yourself.
Think what would happen if you became ill or disabled and couldn’t work. Would you ask your parents 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 it means you don’t have to worry about getting cover later if your health changes (see myth #3).
Myth # 3 – I won’t be covered if my health changes
Once you start your cover, what you are covered under your life insurance for won’t change – 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.
It’s worth noting that for a OneCare Business TPD policy, a change of occupation can alter terms of cover*. Should you change occupation,you will need to notify your insurer and refer to the Product Disclosure Statement and Policy Terms for details.
* OneCare is issued by OnePath Life Limited (OnePath Life) ABN 33 009 657 176, AFSL 238341. OneCare Super is issued by OnePath Custodians Pty Limited ABN 12 048 508 496, AFSL 238246. OnePath Life is not a related body corporate of OnePath Custodians.
We recommend that you read the relevant Product Disclosure Statement available at www.onepath.com.au or by calling 133 667 before deciding whether to acquire, or to continue to hold the product.
Myth # 4 – You have to do lots of medical tests to get covered
Most life insurance products sold through financial advisers required some medical tests before you get covered, but it may 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.
Myth # 5 – Level premiums don’t go up
‘Level premiums’ are designed to save you money over the long term by eliminating the impact of age-based premium increases.
Level premiums are calculated based on your age when the cover started, not at each anniversary, which means premiums are generally averaged out over a number of years. This means your cover is more expensive than‘stepped premiums’ at the beginning of your policy, but generally gets cheaper(relative to stepped premiums) as your policy continues.
It’s important to note that at policy anniversary the premium may still increase (even with level premiums), because age is just one factor that determines your premium. Other factors that impact premium (such as claims trends in Australian population) can result in a repricing of your insurance cover.
When insurers reprice stepped or level premiums, they don’t do it for an individual policy within a specific group unless they do it for every policy in that group.
Many life insurers in Australia have repriced level premiums in the past, so it’s important to talk to your financial adviser or your life insurer to understand your policy as well as any repricing activity that’s recently occurred, so you can make an informed decision. To understand the factors that influence your premium. Learn more here.
Regardless of whether stepped or level premium is selected, premium rates and premium factors are not guaranteed or fixed and insurers have increased premium rates in the past and may increase in the future.
The graph is for illustrative purposes only. This graph illustrates age-based premium increases for stepped against level for all covers. This premium comparison has been calculated, assuming all other factors affecting the premiums are excluded.Both stepped and level premiums can increase due to factors other than age.Premium rates and premium factors are not guaranteed or fixed, and insurers have increased premium rates in the past and may increase in the future. We recommend that you refer to the relevant product disclosure statement and policy documentation, and speak to your financial adviser, to understand other factors affecting your premiums.
Myth # 6 – I’ll be stuck paying for cover I don’t need
Life insurance is designed to change as your life changes, as your cover needs can vary significantly over your lifetime.
Say you take out life insurance when you get married. You may want to increase your cover if you have children or increase your mortgage (learn about increasing your cover via future insurability).
But similarly you may want to reduce your cover if your children have grown up or you’ve paid down your debts.
Your financial adviser 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.
Myth # 7 – The cover in my super is enough
Over 70% of Australian life insurance policies – more than 13.5 million separate policies – are held through superannuation funds*.
While this cover is great to have, many of these policies only provide the minimum level of cover employers have to offer, which isn’t enough for most people.
In fact, Rice Warner estimates that the median level of cover in superannuation meets is 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/
Myth # 8 – I’ll be covered by workers’ compensation
Workers’ compensation provides some protection for work-related accidents or injuries.
But 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.
Myth # 9 – Only the main breadwinner needs life insurance
There’s no doubt insuring 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, their family would need a lot of assistance.
Imagine a breadwinner had 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.