Existing customers – for more information regarding recent changes to your Income Protection or TPD insurance please click here

Existing customers – for more information regarding recent changes to your Income Protection or TPD insurance please click here

Life Insurance

Are you overpaying for life insurance?

18 Jul 2022

Life Insurance by Life Stage

The choices you make today can impact your long-term health, wealth and happiness. Understand the important role Life Insurance can play in key life events.

Are You Overpaying for Life Insurance?

Life insurance isn’t the cheapest thing in the world. However, cost is a key reason some people refrain from getting it despite how useful it can be.

What’s more, certain types of life insurance can seem even costlier than their actual value. That’s why it can be discouraging to think that you’re overpaying for a service that’s already considered expensive.

In NobleOak’s 2022 Whitepaper, research respondents confirmed that ‘not seeing the value in their policy’ was one of the main reasons they didn’t renew their cover. Another reason was that people didn’t know if they had the right type or amount of cover. Unfortunately, this is something that happens quite often. And it has to do with how well you’re able to compare available offers. Because without thoroughly analysing them, you’re more than likely to overpay for the kind of insurance you actually need.

Presumably, overpaying for life insurance is the last thing you’d want to do. If you haven’t reviewed your insurance for some time, it may surprise you to find out that is what may be happening. You may already be overpaying for life insurance.

There are several factors that can cause you to overpay. You might have started off with the wrong insurance. Or, maybe you bought a term life insurance policy when your existing life policy inside your super is providing adequate cover in the circumstances.

Whatever the case may be, a thorough life insurance comparison can show you what’s going on. It might also help inform you about some possible changes.

In this article, we’ll showcase the three signs that you might be overpaying for life insurance and provide some ideas as to what you could do about it.

Three Big Signs That You’re Overpaying for Insurance

Do you really need the insurance you’re paying for? More importantly, is it the right type of life insurance for you? The following can help you think about whether you’re overpaying for insurance or not.

Let’s take a closer look.

1. You Have Insurance That You Don’t Need

Life insurance is likely a good idea when you have other people who depend on you financially. Or, you might have a mortgage or other debts that could burden your loved ones financially should you die prematurely. Finally, life insurance cover could help cover the education costs of your children if you pass away unexpectedly.

Meanwhile, people who are single, just starting their careers, are not planning to buy a property and have no potential debts or big future expenses may not need life insurance yet.
On the other hand, if you’ve already paid off the mortgage and are enjoying retirement, it might be prudent to review your policy. Once your children have grown up and maybe take on life insurance of their own, they may no longer depend on you financially. With no debts left and a retirement nest egg to cover the finances, your policy might not be needed as much as it was before because your circumstances have changed in the meantime.

However, there’s an additional matter worth your attention. As morbid as it may seem, your funeral expenses could have a negative impact on family finances.

2. You Bought the Wrong Type of Insurance

If you’ve joined a super fund, you might already have life insurance. However, it is now no longer compulsory to have life insurance cover inside your super. Prior to this change, many people did not know they had life insurance as part of their super fund.

This could mean that you might be paying for term life insurance bought direct or through an adviser in addition to the life insurance within your superannuation.

Note that although life insurance through superannuation is typically cheaper it tends not to be fully underwritten and as a result often comes with broader pre-existing condition exclusions.

However, people need to consider not only the possibility of broader exclusions, but also whether the sum insured for life cover within their superannuation is adequate. By examining your potential expenses and debts, you could find out if you need an additional top up policy.

3. You’ve Overestimated How Much You Need

A straightforward formula used by many when working out how much life insurance they need is to multiply your annual salary by six to 10 times. In addition, there are many free online life insurance calculators that can be used as a tool to help people think about how much cover they may need.

It’s usually a good idea to be clear about your specific objectives such as being able to pay off the mortgage, cover living costs and looking after your family’s financial future.

Below is a list of some of the main types of life insurance, as well as some of the factors you should consider in determining how much life insurance is adequate for you.

  • Term life insurance: Often known as ‘life cover’ or simply ‘life insurance or death cover’, this type of life insurance helps shield your family from financial strain in case you die. Consider your debts, cost of childcare and raising kids, and your funeral requirements when deciding on a cover amount.
  • Income protection insurance: In case you have to stop working because of a severe medical condition or debilitating physical injury, income protection assists you financially as you can insure from 60% upwards (depending on the insurer and your policy) of your income for your selected benefit period whilst you are unable to work. When calculating how much cover you need, consider the amount of income you require to maintain your lifestyle.
  • Trauma or Critical illness insurance: With this type of life insurance, you get paid a lump sum to help ease some of the financial burden if you suffer from a serious or critical illness listed in the terms of the insurance cover.
  • Total permanent disability (TPD) insurance: If you are in injured or become ill and unable to work again, TPD cover will operate as a financial safety net of sorts. With TPD cover, you get paid a lump sum following a successful claim. There are several items you should take into account when calculating the amount of TPD cover you may need, including your debts and mortgage, ongoing expenses, income you’ll lose because of your inability to work, lifestyle changes because of your permanent disability, and house modifications to accommodate your new needs.

Before finalising your insurance, make sure you ask questions. Ascertain exactly what items are covered by your insurance, and any exclusions or special conditions and other pertinent details.

Depending on the terms of your policy, you might be able to make some changes to the premium during the course of your cover. For example, NobleOak offers a premium freeze benefit. This means that if you choose, your future premiums will be fixed at the amount you were paying on the date you notified us (although the cover amount will reduce to the level of cover available for that premium).

A good time to think about this is when the policy is due to be renewed.

How a Life Insurance Comparison Helps

With a thorough life insurance comparison, you can get a better grasp of how much you’re spending on your policy. There might be costs and expenses you can cut down on. If you determine there are such costs and adjust your insurance accordingly, it could present some financial gains. Everyone’s circumstances are different so there’s no ‘hard and fast’ rule here.

Be aware, however, that people generally underestimate how much cover they need. Research completed by Rice Warner shows that the problem of underinsurance is growing with parents aged 30 needing $561,000 for a basic level of life cover compared to $207,000 for parents aged 50.

It’s important to review your cover terms periodically, especially if your life circumstances change. Should you want to amend the cover level of your insurance to reduce your premiums, always check with your insurer.

Taking out life insurance may be one of the most important financial decisions you can make. To find out more or get a quote, call a NobleOak Life Australian-based insurance team member on 1300 014 494, or go online for a no-obligation quote.
This is general information only and does not take into consideration your individual circumstances, objectives, financial situation, or needs. Always consider the PDS for the details of the insurance cover.


Life Insurance Calculator: How Much Coverage is Enough?

Life insurance in superannuation: Improving outcomes for members

One quarter of Australians don’t know they have life insurance through super

Are you overpaying for your insurance?

How much life insurance do I need?

New Customer Enquiry Form
Existing Client Enquiry Form
Claims Support Form
Request a callback