Insurance policies worth retention

As many income protection policy holders would attest, the premium increases have been quite savage in the last 24 months, with many premiums increased by over 50% in that time.

The main issues facing the life insurance industry are long dated mental health claims payable until age 65. The new income protection policies now offered generally limit the benefit period in which an insurer is required to pay to only 24 months. If they do provide a benefit that is payable to age 65, then the client has to be so disabled that they cannot do anything ever again. As a result, many clients are trying to maintain their existing contracts with policy definitions that are far superior to the new policies.

Some of the key changes clients can consider:

  • Smaller monthly sums insured
  • Increasing policy waiting periods
  • Removing add on feature such as indexation or how the sum insured will index on long dated claims
  • Decreasing benefit periods to 2, 5 or 10 years pending the insurer you are with presently

We still maintain that income protection policies are one of the most valued pieces of protection inside a client’s portfolio. Without the ability to earn income, all financial plans become redundant and clients are faced with erosion of their accumulated wealth earlier than they had planned.

If you ever want to assess the true value of your policy, we encourage that you multiply your sum insured by 12 to bring it to a yearly amount the insurer will pay upon claim. Then multiply that amount by your benefit period which is to age 65 for many. Upon completing this basic sum, most clients are reassured that even with these escalating premiums, the policies are still good value and worth retention, even though a shock initially.

It can be argued that the competition amongst banks in the last decade drove premiums down, and with their exodus, we are now all paying the price with these market corrections.