Life insurance confusion puts families at risk

MORE Australians are shunning life insurance in the aftermath of last year’s damning financial services royal commission, but may be putting their family’s finances at risk.

The proportion of people buying life insurance has dropped from 56 to 47 per cent since 2018, according to a new report by life insurer NobleOak.

It found almost two-thirds of Australians are confused by life insurance products, and confidence in the industry had been shaken by the royal commission, which revealed excessive fees and premiums being charged to dead people. NobleOak CEO Anthony Brown said financial advisers were also going through upheaval and were now less inclined to sell life insurance.

“An increasing number of consumers are underinsured and would rely on savings and family and friends should a crisis occur,” he said.

“Unfortunately, these funds often aren’t enough.”

A majority of Australians have life insurance in their super but it’s often inadequate and not understood.

Mr Brown said people were confused about the amount and type of cover they should have.

“With a car and home, you generally know the value – but with your life, people are concerned about how much they need,” he said.

Life insurance is an umbrella term for four products: life (death) cover, total and

permanent disability, income protection and trauma insurance.

Quality of cover also confuses people.

Fully underwritten cover asks questions and conducts medical checks upfront, while lower-quality cover waits until a claim is made – with exclusions or pre-existing conditions potentially preventing a payout.

Mr Brown said people could assess their needs using online calculators at moneysmart.gov.au, comparison sites such as Canstar.com.au and insurance company websites.

“There’s a perception that it’s going to cost a lot more than it really does,” he said.

For example, $500,000 of life and TPD cover can cost $24 to $33 a month for a white-collar female and $29 to $38 for a male.

Planning for Prosperity senior financial adviser Daniel

Budreika said the need for life insurance “hasn’t gone anywhere, and the number of Australians who are underinsured is going to increase”.

He said life insurance was most important for people who had taken on large debts – such as a mortgage – or who had a young family.

“Check inside your super and look to see what you have got, and if you think it needs increasing,” Mr Budreika said.

People could also speak to an adviser or get life cover direct from an insurance company, he said, and should check whether underwriting was done upfront.