We’re all interested in reviewing the current status of our wealth creation plan to see how our investments are performing. Unfortunately however, reviewing your insurance strategy is an often forgotten activity, as many of us adopt a ‘set and forget’ approach.
Do I still need my insurance?
If you’ve ever been involved in a car accident, had a flight cancelled, become seriously ill or had an injury that has kept you out of action for any length of time, you’ll know how worrying these incidents can be. If you have insurance, the cost of repairs, medical treatments, travel changes or recovery treatment can be softened.
Insurance provides the money you need when things go wrong, and we all know that sometimes, they do.
When should I review my cover?
You should review your insurance strategy whenever there is a change in your personal or business circumstances. Changes in any of the following areas should prompt you to review your cover as they can impact the type and amount of insurance cover you need:
- debt levels
- relationship status (for example marriage, divorce or a new partner)
- occupation or employment status (for example if you become self-employed or employee)
- health (improvements or change in health of you or your partner)
What if nothing has really changed?
You should still review your insurance strategy every year, even if nothing in your personal or business circumstances has changed. Intense competition in the risk insurance marketplace means that insurance providers are always looking for the ‘edge’ with their products, particularly to ensure they remain in the highest rated products.
This can often result in additional benefits, better policy definitions and the introduction of new additional options which can be of value to you if you need to make a claim. While many insurers will automatically ‘pass back’ improvements in their policy definitions, this shouldn’t be assumed.
Where can I go for help?
It’s best to speak with us, your financial adviser, as we specialise in helping you understand the details of any policies you have, or that you are applying for.
Why do my premiums go up?
A question that is sometimes asked is ‘Do events such as the GFC impacted on my premiums? I have heard that due to the poor investment returns life insurance companies are facing, they have to pass this on to me in higher premiums.’
According to TAL, the answer is generally no. Most life insurance companies invest the premiums received into the short term money market and not into shares, in respect of backing their insurance liabilities. In broad terms, insurers are trying to match their investment strategy to suit the liabilities they are exposed to.
Whilst short-term interest rates have come down, as the Australian Government and those around the world have tried to stimulate economic activity through cheaper credit, this would only have a marginal impact on term premium rates. An exception to this is long term income protection, where falling interest rates have their biggest impact, due to the long term nature of the liability potentially stretching many years into the future.
Does inflation impact your premium rates? Yes, although only marginally so. As with any other business, rising costs faced by life insurers end up being passed on to customers. However, the component of your premium which is used for the running business expenses of the insurer is often only a fairly small component, and with inflation at approximately 2.5 per cent per annum), this is not a significant factor.
For further information, please contact Revolution Financial Advisers.