Life cover goes Boom

OLDER Australians are wasting tens of millions of dollars a year on life insurance they don’t need.

Sharp rises in insurance premiums in the past decade – particularly in superannuation funds – have increased the potential wastage as preretirees pay their premiums with money that could be diverted into their savings.

Baby Boomers are most at risk of spending on unnecessary insurance because many no longer have dependent children or a mortgage, and their nest eggs are large enough to cover them financially.

Official data shows that Australians paid $15.9 billion for life insurance policies last financial year, and SuperRat-ings chairman Jeff Bresnahan estimates 90 per cent of people with super are paying for life insurance within it.

“Unless they have actively opted out – which very few people have because they’re unaware or couldn’t be bothered – nearly everyone is paying for this insurance,” he said.

Typical annual life insurance premiums within super had jumped from around $100 a year in the early 2000s to between $400 and $800 today, Mr Bresnahan said. “That’s too high for people who haven’t chosen that option,” he said.

The types of insurance held in super funds are term life cover (for death), total and permanent disability, and income protection insurance. This insurance can also be held outside of super.

William Buck’s director of wealth advisory, Adrian Frinsdorf, said life insurance should not be a set-and-forget strategy, and recent gains in property and share prices had given many Boomers the chance to self-insure.

“Their children are often all grown up and the financial future of either spouse is already secure,” he said.

“They now have the financial bases covered should an event occur for which they previously would have relied on an insurance payout.

“Recently I’ve crunched the numbers for some clients and it was decided, based on their improved financial status, to cancel their life insurance and invest the premiums elsewhere. That money, which can range from $5000 to more than $10,000 annually, is then reinvested in shares or in some cases on enjoying more of life.”

Wotherspoon Wealth director Simon Wotherspoon said some older people wanted to hold on to insurance because it might deliver their family a financial windfall, while advisers often avoided recommending a cutback because they would feel guilty if there was a claim.

“A lot of people have paid for insurance all this time and are reluctant to give it up. But insurance really is just to manage risk, not to get a windfall.”