About life insurance
Do you need it? What types of policies and payment options are there? We explain the basics.
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If people depend on you for income or care, you need life insurance. Choosing the right amount and buying from the right company can save you a lot of money. We've looked at "term life" policies, and asked 20 companies to provide quotes for our 2 case studies.
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If people depend on you for income or care, you need life insurance. Choosing the right amount and buying from the right company can save you a lot of money. We've looked at "term life" policies, and asked 20 companies to provide quotes for our 2 case studies. Join Consumer and choose what's right for you.
The premiums quoted are yearly stepped (see About life insurance for information about premium structures).
Our survey found premiums can vary by up to $270 per year depending on age and the sum assured. What’s more, different policies offer different levels of cover. So, which insurer should you pick?
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Financial advisers are supposed to help you answer these questions. But the Financial Markets Authority (FMA) says it has received an increasing number of complaints regarding insurance sales. One area of concern is the mis-selling of insurance products, including the unnecessary “churning” of consumers between insurers.
In Australia, high commission rates have been blamed for encouraging some financial advisers to put quantity of sales before quality of advice.
A review by the Australian Securities and Investments Commission (ASIC) published in October 2014 found life insurance advice given to more than a third of consumers didn’t meet the required legal standard. According to ASIC, advisers were more likely to give substandard advice when paid an upfront commission for selling a particular product.
ASIC reports the upfront commission on a life insurance policy is typically 100 to 130 percent of the new premium. If the policy lapses within the first year or so, insurers can "clawback" the upfront commission from the adviser. But beyond the clawback period, advisers have an incentive to switch clients to new policies to earn another upfront commission.
This is bad news for consumers. Insurers calculate premiums based on the expected lifespan of a policy, which is about seven or eight years in Australia. But ASIC says insurers are now basing premiums on a shorter lifespan due, in part, to increased churn. In short, they’re hiking premiums at a faster rate in order to recoup overheads before policies lapse.
Back here, the FMA intends to investigate the extent of insurance problems in our own market. The Financial Services Council, an industry body, says some efforts have been made to flatten commission structures. However, it acknowledges high upfront commissions “remain a predominant feature of the industry here”.
Before taking out life insurance with an adviser, ask how they’re paid (an authorised financial adviser should disclose this information automatically). If the adviser is paid via commission, it may influence the products they recommend.
You must pick a sum assured when you take out life insurance. This should be enough to pay off your mortgage, clear any immediate debts (such as funeral expenses) and provide an income for your family. Use our calculator for an estimate.
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