Mastering Insurance: Taming Rising Premiums 

In a world where uncertainties lurk around every corner, insurance shines as a beacon of reassurance in the Australian market. It’s a safeguard against life’s unexpected twists and turns, with Life, Total and Permanent Disability (TPD), Income Protection, and Trauma insurance acting as formidable pillars of financial security. However, in this landscape of protection, policyholders often face the challenge of rising premiums, leaving them pondering the reasons behind these increases, the extent of their impact, and how to sustain coverage without straining their finances. Moreover, the intricate dance of paying insurance premiums from your superannuation can cast shadows on your retirement savings. 

Understanding Premium Increases in the Australian Market 

Why Do Premiums Increase in Australia? 

The heartbeat of premium increases in Australia is the assessment of risk. Insurance providers meticulously recalibrate premiums based on various factors: 

1. Age: As the sands of time flow, the likelihood of illness or injury surges, naturally translating into higher premiums. The rate of increase may vary depending on the type of insurance. 

2. Claim Experience: If an insurer in Australia finds itself frequently settling claims within a specific category, they might raise premiums for policies in that category to offset their losses. 

3. Economic Conditions: Broader economic trends, including inflation, interest rates, and investment returns, have a ripple effect on premiums. These elements impact an insurer’s ability to maintain existing premium levels. 

4. Health and Lifestyle Changes: A deterioration in health or involvement in riskier activities can trigger premium hikes, reflecting the increased likelihood of claims. 

5. Policy Features: Some policies in the Australian market offer premium guarantees for a set duration. After this period, premiums can soar based on the insurer’s terms. 

Impact on Policyholders in Australia 

The ramifications of premium increases in Australia vary depending on the type of insurance and the magnitude of the increase: 

1. Life Insurance: While premium hikes may be infrequent, they can exert significant pressure on long-term affordability, especially as you age. Ignoring these augmented premiums could lead to lapses in coverage, a risk best avoided. 

2.Total and Permanent Disability (TPD) Insurance: Premiums tend to ascend with age, mirroring the heightened risk of disabilities. Policyholders in Australia may need to adjust their budgets to accommodate these heftier premiums. 

3. Income Protection Insurance: Frequent premium escalations can constrict policyholders’ budgets, denting their disposable income if premiums are paid directly (rather than from superannuation). Balancing the need for coverage with affordability becomes paramount. 

4. Trauma Insurance: Premiums can inflate with age or due to shifts in medical underwriting criteria. Policyholders must judiciously assess whether their coverage aligns with their individual circumstances. 

How Much Have Premiums Increased in Australia? 

The trajectory of premium hikes in the Australian market is multifaceted, contingent on the insurer, policy type, and individual context. On average, premium increases for life, TPD, income protection, and trauma insurance hover between 5% to 10% annually. However, some policyholders may have weathered steeper escalations of 20% to 40% over the past three years, particularly as they journey through life’s stages. 

Impact on Superannuation Balances in Australia 

Paying insurance premiums from your superannuation account has potential repercussions for your retirement savings: 

1. Reduced Retirement Savings: Funneling premium payments from your superannuation balance chips away at the money designated for your retirement. Over time, this steady erosion can significantly diminish your superannuation nest egg. 

2. Consider Opportunity Cost: Balancing the advantages of insurance coverage against the potential opportunity cost of curtailed retirement savings requires careful deliberation. Seek guidance from professional financial advisors to strike the optimal equilibrium. 

Why You Need Insurance: The Four Types and Their Benefits 

1. Life Insurance: It offers a lifeline to your loved ones upon your demise, ensuring they can meet expenses like mortgages, debts, and living costs, thereby upholding your family’s financial stability. 

2. Total and Permanent Disability (TPD) Insurance: TPD insurance extends a protective shield if you confront permanent disability and can no longer work. It covers medical expenses, rehabilitation costs, and daily living expenses. 

3. Income Protection Insurance: This insurance steps in to replace a slice of your income if you’re sidelined by illness or injury, assuring you can sustain your lifestyle and meet financial obligations during your recuperation. 

4. Trauma Insurance: When confronted with a critical illness or condition, trauma insurance delivers a financial lifeline in the form of a lump sum. These benefits offer respite to cover medical treatments, modifications to your home, and other expenses as you recover. 

Maximising Value While Reducing Premiums in the Australian Market 

Trimming insurance premiums can be a shrewd move, but it necessitates a delicate equilibrium between cost savings and the requisite coverage level. Here are strategies for whittling down premiums while keeping an eye on the repercussions of reduced coverage across the four insurance types: 

– Shop Around: Explore diverse policies from different insurers to uncover the best value for your money. Engage with your financial advisor or reach out to us for expert assistance in making informed choices. 

– Bundle Your Policies: Some insurers extend discounts when you bundle different types of insurance under one policy or with one insurer. For instance, you might realize savings by amalgamating life and TPD insurance into a single policy. 

– Adjust Your Level of Cover: Review your coverage to ensure it aligns with your current circumstances and needs. You could potentially reduce premiums by trimming your sum insured, eliminating optional extras, or opting for a longer waiting period or a shorter benefit period for income protection. 

– Improve Your Health and Lifestyle: You can actively whittle down premiums by embracing healthier habits such as quitting smoking, shedding excess weight, adopting a regular exercise routine, and steering clear of risky activities. Some insurers might even proffer discounts or incentives for healthier living, or they may insist on medical assessments before extending coverage. 

– Pay Annually: Some insurers impose extra fees or interest for monthly premium payments. The savvy move is to slash your premiums by opting for an annual payment schedule instead of a monthly one. 

Impact of Reducing Coverage in Australia 

While reducing coverage can wield the scalpel to trim premiums, policyholders in Australia must maintain vigilance concerning the potential consequences: 

– Reduced Protection: Scaling back coverage could leave you inadequately shielded in the event of a major life event. It’s imperative that your coverage level remains in lockstep with your financial needs and obligations. 

– Claims Eligibility: Some policies may impose stricter criteria for claims eligibility if you opt for reduced coverage. It’s imperative to meticulously pore over the terms and conditions to grasp the implications on future claims. 

In summary, comprehending the dynamics of insurance premium increases and their ramifications is pivotal for Australian policyholders. The quartet of insurance—Life, TPD, Income Protection, and Trauma—each plays a distinctive role in guarding your financial future. By deftly deploying strategies to curtail premiums while preserving sufficient coverage and weighing the impact on your superannuation balance, you can achieve a harmonious equilibrium between financial security and retirement readiness in the Australia. In a world teeming with uncertainties, insurance remains your steadfast ally, steadfastly preserving your well-being and financial security.  

Please don’t hesitate to call, email or message us to talk through any questions you have after reading this article. If you have an insurance policy you would like to review please book a session with us. Also we would love to hear feedback or know about future topics you would like us to cover. 

7Wealth Pty Ltd ABN 44609210246 is a Corporate Authorised Representatives and is authorised through Cobalt Advisers Pty Ltd ABN 64 628 654 099 who is an Australian Financial Services Licensee 512550. 7Wealth Pty Ltd is a Credit Representative of Australian Finance Group Ltd ABN 11 066 385 822 (AFG) Australian Credit Licence 389087. 

This blog contains information that is general in nature. It does not constitute financial or taxation advice. The information does not take into account your objectives, needs and circumstances. We recommend that you obtain investment and taxation advice specific to your investment objectives, financial situation and particular needs before making any investment decision or acting on any of the information contained in this document. Subject to law, Cobalt Advisers Pty Ltd nor their directors, employees or authorised representatives, do not give any representation or warranty as to the reliability, accuracy or completeness of the information; or accepts any responsibility for any person acting, or refraining from acting, on the basis of the information contained in this document. 

September 22, 2023