In this post I want to talk about a topic that's vital for all of us: personal insurance. In particular, I'm going to look at trends in insurance claims on super funds, how they're affecting those funds and, possibly, your premiums.
Insurance claims are on the rise.
In Australia, insurance claims for illness, injury and disability are on the rise due to a number of long-term trends.
Secondly, our population is ageing. This means more policy holders are reaching an age where they are likely to be claiming on their insurance policies or are leaving the pool of policy holders and taking their premium payments with them. The problem is compounded by the fact that there are also fewer young people available to enter the pool of policy holders.
Thirdly, over the last few years, insurers have broadened their definitions in a bid to win more clients, increasing the number of "defined events" that can be claimed for. Whilst this appears good for policy holders, ultimately it can lead to an unsustainable cost structure that has the potential to increase policy premiums and damage the insurance industry over the long term.
Lastly, lawyers are becoming more active in helping people make insurance claims against super funds, as a recent Sydney Morning Herald article points out. The disappointing aspect of this is many of society's more vulnerable are paying a significant portion of their claim to lawyers. Whereas, if you have a financial advisor, they will generally deal with the claim as part of the service they provide.
Insurance through super may not be so super.
Superannuation firms are obliged by law to provide insurance cover to members, and I believe the trends described will place increasing pressure on these funds. Over recent years, many premium rates have increased significantly but these often go unnoticed as the total dollar cost of the increase is often unclear. Plus premiums are collected through the super fund which is less transparent than the premium leaving your bank account.
As premiums rise, increasing numbers of educated, fit and healthy people are likely to leave insurance schemes run by super funds as they find better value insurance elsewhere. The result is a concentration of higher-risk members and ongoing premium increases as the claims experience worsens.
What does this mean for you?
You need to understand what personal insurance you have and whether a super fund is the most cost-effective way to get that insurance.
I think there's a myth that if you want to pay your insurance premiums from your super contributions, then you must have your insurance with that fund but that's not necessarily the case. It is possible to fund your insurance through your super but have your insurance provided by a different party. Also don't assume that if you have insurance cover through your super fund it will be cheap. Insurance through your super fund can often be quite expensive. You also need to review your insurance policies regularly and check any changes or premium increases.
It's always worth taking advice about your personal insurance from an independent adviser. At Medical Financial Group, we understand price is important but believe it remains only part of the value equation. We recommend the right protection strategy taking into account all of your circumstances. We review this each year to ensure that, if the worst happens, there are no surprises. This involves reviewing a client's changing needs as well as their super, insurance and estate planning arrangements to make sure they work together to deliver the required outcome.
Please feel free to contact me with any questions you may have via:
Phone: (07) 3363 5800 or
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