Revealed: the key to comparing life insurance policies to make sure you get what you pay for.
Frank Dyer, Lifebroker's Head of Business Management, walks us through what to look for - and what to look out for - hint: it's not just price. It can feel as though you need a telescope and a Sherpa to find the right life insurance policy. With so many to sift through it's tempting to just go with the cheapest option, but to ensure your loved ones won't be left in need, it's imperative you do your research before making a decision.
We asked Frank for guidance on how to cut through the confusion and avoid pitfalls when comparing insurance policies on price.
What’s important to keep in mind when comparing life insurance? Are cheap life insurance policies still beneficial?
“An important thing to consider is exclusions – medical conditions or activities that aren’t covered. Sometimes the most affordable policy will still include the same benefits as the most expensive. Make sure you read the fine print on the different options and be on the lookout for any lurking exclusions,” Frank says. “The Product Disclosure Statements can be helpful here. Lifebroker's comparison tool also provides a quick reference table that includes price, features, benefits, inclusions – and exclusions. Understanding a policy’s exclusions will go a long way to minimising surprises at claim time."
Many people start looking at life insurance when they have major life changing events such as buying a home, having a child or getting a new job. Is it cheaper in the long run to take out a policy when I'm younger or hold off until middle age?
"Taking out a life insurance policy when you’re younger can mean your premiums will be lower, particularly if you’re looking at level premiums,” Frank advises. “The healthier you are when you first take out life insurance can also help avoid any unexpected exclusions, loadings or potential decline of cover.”
What is the difference between level and stepped premiums?
“Stepped premiums are recalculated each year based on your age. This price rise reflects the increased likelihood you will fall ill as you get older,” Frank explains. “Stepped premiums will generally be cheaper than level premiums to begin with, which is the main advantage. However, it’s important you’re aware that over the years, stepped premiums can increase significantly.
“Level premiums are based on your age and other factors at the time you take out the policy, and remain more constant for the duration of the policy,” adds Frank. "They are more expensive at the outset but, depending on how long you hold the cover, you may end up saving on premiums over the long term compared to stepped premiums. “ It is also important to note that with some products level premiums will revert to stepped at age 65."
With both stepped and level premiums inflation proofing (also known as inflation protection or indexation) will cause a percentage increase to your premium over time. Inflation protection is an option to help keep your cover in line with the rising cost of living.
“For many people, a life insurance policy is a purchase you make for the long term, so level premiums may be a more suitable option as they help control your costs over time. Premiums are usually higher at the beginning but much cheaper than stepped premiums when you are older” he adds. “If you intend to hold the insurance for a long time, level premiums are likely to be cheaper in the long run. However, if for example, you only require cover for a specific period of time, a stepped premium may be more suitable."
Do I need all the bells and whistles?
“There are insurance policies available, such as Total and Permanent Disability (TPD) and Trauma insurance” Frank explains. “TPD insurance covers you if you ever become totally and permanently disabled whereas Trauma insurance (also known as Critical Illness Insurance) pays you a lump sum if you’re diagnosed with any of the critical illnesses listed on the policy such as heart disease or cancer. These policies increase premiums but also add value. Make sure you read the inclusions and exclusions carefully as you review quotes. In some cases for a little bit extra a month you can receive additional protection or features, in other cases the most affordable policy may actually include more benefits than a more expensive option."
Is it cheaper if I lead a healthy lifestyle?
"Some life insurers have started offering discounts to clients based on their efforts to improve their health. For example, AIA Australia have launched AIA Vitality, a program that offers rewards and discounts on premiums as well as travel, shopping and entertainment to members who set and achieve health goals. Another example is TAL’s Health Sense program, which offers new clients up to 15% discount on life insurance and/or TPD insurance for the life of a policy, if at the time of application, their Body Mass Index (BMI) falls within the Health Sense range.”
Can I change my policy if my needs or circumstances change?
"Cover reductions, increases and changes are available based on eligibility. Insurers understand circumstances change. In some instances you may be asked for further information such as your current medical history to determine if your insurer will accept an increase or additional cover. Changes in cover amounts will usually result in an impact to your premium. There may also be waiting periods or exclusions to the additional cover amounts."