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[By David Wilkinson, Senior Product Manager at Australian life insurer TAL]
While the total number of insured Australians has increased over the past ten years, unfortunately recent research from Rice Warner has shown the underinsurance gap – the difference between the amount of cover people have in place, and the amount they need to be fully protected should the unexpected occur – has widened since the last research was conducted in 2017.
This is due to a range of factors including new legislation impacting insurance through superannuation, the impact of the COVID-19 pandemic on employment and financial security, and a general lack of understanding at an individual level when it comes to insurance needs.
And as our life’s priorities and financial responsibilities continue to change over time, it’s also important to be aware of the level of cover you have in place and consider whether it’s adequate to protect yourself and your loved ones should the unexpected occur.
When do you need to review your life insurance?
Your life insurance may not always be top of mind, but your policy isn’t a ‘set it and forget it’ product. Life insurance works best when you have the right level of protection for your circumstances, and that means ensuring your cover matches your needs. As your lifestyle changes, so might your insurance needs.
Some examples of times when you should consider updating your policy to ensure it reflects your changing circumstances include:
• Getting married
• Getting divorced
• Having children
• A positive change in health (for example, if you’ve given up smoking)
• Refinancing your home
• Taking out a car loan or other major financial commitments
• Receiving a pay rise (including, for example, if you adopt a more expensive lifestyle and take on increased financial commitments as a result).
These milestones mark important times to review your insurance – including the amount of cover you have and whether your beneficiaries are up to date. Understanding your life insurance policy, as well as your spouse’s policy, is the first step before performing a life insurance policy review.
It may be a good idea to set up an annual reminder – perhaps at financial year end – or, alternatively, engage with a financial adviser who can check your level of insurance and provide clarity and understanding when making a financial decision.
What are the key things to consider when buying life insurance or changing your policy?
If you are thinking about switching your cover to a different insurer, MoneySmart says that in addition to looking at the difference in premiums, people should consider the following:
• Level of cover – Understand whether you will get the same level of cover, and if this is the cover you need
• Waiting periods – Understand if any waiting periods apply to different types of benefits with your new insurer.
Don’t forget to keep your existing cover until you have a new policy in place so that you are always covered. Checking that you won’t lose any benefits when replacing your insurance policy will also help to ensure you are protected during a difficult period.
There are several different types of protection which fall under the ‘life insurance’ umbrella, and it’s also important to understand the way each one works, as they all can protect your life in a different way.
Life insurance can feel like a complex topic, but it doesn’t have to be. If you feel it’s time to review your life insurance, you can get in touch directly with your insurer, your superfund, or with your financial adviser who will be able to help you assess your options.
They can talk you through your own specific circumstances and help you understand both your current level of cover, as well as the cover you need to feel confident that both you and your loved ones are fully protected for the future.