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When you first applied for your insurance, you did so to protect yourself and the ones that depend on you. Not renewing your insurance policy may result in you losing the insurance protection you chose for you and your family. It’s important to know what to expect each year on your policy anniversary and understand why the cost of your cover may change. You’re in control of your insurance policy, and there may be things you can do to reduce your premiums, while keeping a level of protection.
Why insurance is important and how it works
It’s important to remember why you protected yourself and your family with insurance in the first place. It may have been to provide peace of mind for one or several of the below reasons if something were to happen to you:
- help pay the mortgage
- pay bills
- fund your children's education
- financial help to live independently if you can't earn an income
- help with out-of-pocket medical costs
- provide a lump sum to supplement any reduction in your income
We’ll be there when you need us
Your premium payments are pooled together with the premiums of all other customers in your product. If anybody makes an eligible claim, then the pool must have the funds to pay.
In 2022 alone, we needed around $1 billion to pay the claims of our customers - that’s around $2.8 million every day.
Naturally, everyone hopes they never need to make an insurance claim. But we want all our customers to have peace of mind in knowing that the funds are there to support them and their family should the worst happen.
Why your premiums may change each year
The reasons why the cost of your insurance cover may increase include:
- Aged-based increases - If you’re paying a stepped premium, the cost of your cover usually rises each year as you age because the risk of serious illness increases as you get older, and therefore so does the likelihood of you needing to make a claim.
- Inflation (also known as indexation, cost of living, CPI) - Your sum insured may increase each year to keep up with inflation. As your sum insured increases, so does your premium. These increases are referred to as an inflation adjustment, and you can choose whether to opt out of them. Learn more about inflation adjustment and how to opt out.
- Plan fees - This is a charge for setting up and managing your insurance plan. Typically, plan fees increase each year in line with inflation.
- Stamp Duty - This is a charge levied by State/Territory Governments and therefore varies depending on where you live and what type of insurance cover you have.
Why may underlying premium rates change
Cost of paying claims - Our biggest cost, and the reason we exist, is the payment of claims to our customers. We have an obligation to make sure we’re always there when you or your loved ones need us and we are able to keep paying claims long into the future.
The insurance industry continues to see large volumes of new claims, and in relation to income protection, customers are receiving payments for longer than previously. A material contributor is Australia’s mental health crisis, with Resolution Life supporting significant numbers of Australians with conditions such as anxiety, stress and depression.
It is important that we monitor the ratio of premiums coming into the pool compared to claims payments going out, to ensure we can continue to fund claim payments. Regular reviews of our product pricing seeks to ensure we can continue to sustainably support our customers over the long term.
Industry-wide challenges - Factors such as the rising cost of living and number of claims affect all life insurers.
Wider economic challenges - What is happening in the economy can put pressure on insurance premiums, for example rises in interest rates and the impact of returns on investments held.
Why level premiums can also increase
When you first took out your insurance cover, you chose to pay either stepped or level premiums. Unlike stepped premiums, level premiums don’t increase each year because of your age. However, the premium for any increase in the value of your cover, such as an inflation increase (also known as indexation, cost of living, and CPI increases), is the premium that applies as at the date from which that increased cover applies. So for each ‘layer’ of cover, the premium does not increase in future because of an increase in your age.
However, this doesn’t mean level premiums for each layer of cover can’t increase for other reasons, such as if you change your benefit payment period or your waiting period if underlying base premium rates change for everyone insured under your product (refer to point 3 above to understand more about underlying premium rates).
Learn more about level premiums.
You're in control and have options
It’s important that you have a chat with your financial adviser, or with us, to understand your options before making a decision to change your insurance.
You can’t change all the factors that contribute to the total cost of your insurance, but there are many elements you can control and ways of potentially reducing the cost of your insurance premiums whilst staying covered. Here are some options you could consider:
- Extend the waiting period on your income protection policy.
- Review the benefit period on your income protection policy.
- Consider paying your premiums from your superannuation fund, rather than from your monthly household cashflow (although this will reduce your retirement savings).
- Remember that premiums paid for income protection cover may be tax deductible.
- Remove automatic inflation adjustments (also known as indexation, cost of living, and CPI). Learn more about inflation adjustment and how to opt out.
- Review your sum insured (your amount of cover).
- Cancel additional benefits or cover types that you no longer need.
Consider before cancelling your protection
It’s human nature to forget why you took out insurance in the first place, and you may be tempted to cancel your insurance cover in response to increases in premiums – but it may be a decision that results in you losing important insurance protection.
It may also be a decision you can’t easily reverse. If you subsequently apply for a new policy, you may have to undergo medical underwriting again. Any changes in your health, income and lifestyle since your existing policy was taken out may impact your ability to be insured. The terms, conditions and exclusions applicable to your cover could also change, and any new policy may cost more, or have excluded medical conditions due to your health.
Please talk to us or your financial adviser to understand your options around affordability.
What you need to know
Any advice on this website is provided by Resolution Life Australasia Limited ABN 84 079 300 379, AFSL No. 233671 (Resolution Life), and is general advice and does not take into account your objectives, financial situation or needs. Therefore, before acting on this advice, you should consider the appropriateness of the advice having regard to your objectives, financial situation and needs, as well as the relevant product disclosure statement and/or plan document, available from Resolution Life at resolutionlife.com.au or by calling 133 731, before making a decision on whether to acquire, or continue to hold, the product.
Read Resolution Life’s Financial Services Guide (FSG) for information about our products and services, including the fees and other benefits that Resolution Life Group companies and their representatives may receive in relation to products and services provided to you. You can access the FSG by clicking https://resolutionlife.com.au/financial-services-guide.
Resolution Life is part of the Resolution Life Group and can be contacted via resolutionlife.com.au/contact-us or by calling 133 731
