Clients who hold income protection and trauma insurance policies will have experienced, or are about to experience, base rate premium increases to their policies.
This is always an unwelcome hit to the budget, so it is important to reflect on the reasons premiums increase each year at time of renewal.
There is rarely a single reason but at the same time everything is guided by some assessment of risk. For example, we are a year older. That makes us a year riskier! A second component of the premium increase might be attributable to a CPI increase of sums insured which is offered to clients on the anniversary date of the policy. This option actually does not have to be exercised and in some cases we assist clients in rejecting this increase to help with their budget. Remember though, that any future increases to sums insured would then require medical underwriting, so CPI Indexation is a low risk means of having your cover keep pace with inflation.
In addition to the above reasons however, the last few years have seen an increase to the overall base premiums for most of the insurers. These increases occur so that insurance companies can maintain profitability on their policies. Claims have soared, particularly in the areas of stress and depression. This is hardly the fault of the insurers as sadly it is a major societal problem affecting many Australians. Without premiums increasing the companies may not be able to pay the claims.
We are often asked whether a new insurer would be cheaper as there is always the option to change insurers when these increases occur. However, from past experience we have no assurances from a new insurance company that their rates will remain at that level forever. Therefore we could move you to a new insurer for a cheaper premium but it could transpire that in the next 12 months that insurer becomes one of the dearest.
At FB Wealth Management we strongly believe an income protection policy is the most valuable insurance most clients will ever own. Without income and the ability to work, the only viable option could be government benefits or liquidating your assets.
Income protection policies are tax-deductible and value can be tested by multiplying your monthly sum insured by 12 and then multiplying that by the number of years you have until the policy expires, which is generally age 65. The answer to this sum is probably in the millions of dollars. Therefore when you consider the cost of the deductible premium, it is generally difficult to argue against the worth of the policy that you hold. Income protection policies keep paying month on month while you are unable to do the duties of your own occupation. In most cases, the value of this policy will be greater than the policy you have on your home!