MetLife busts life insurance myths in new report
Understanding life insurance is certainly not for the faint of heart. There are so many different terms to wrap your head around, not to mention the choice between superannuation life insurance and standalone cover.
To help dispel myths around how life insurance works and illustrate the value it has to society, major life insurance provider MetLife Australia has just produced a new Value of Life Insurance report. Let's look at some of the key myths they set about busting.
Myth 1: Life insurance is expensive
As insurance is all about risk, premium prices can vary greatly from person to person. For instance, a 25-year-old who doesn’t smoke is likely to pay less for life insurance than a 55-year-old who does smoke. Despite this though, MetLife says there is a myth that life insurance is always expensive.
MetLife cited a 2015 Insurance Barometer Study by global insurance industry research organisation, LIMRA which found that 80% of people misjudge the cost of life insurance, with millennials overestimating price by a whopping 213% and Gen X by 119%.
To illustrate just how cost effective life insurance can be, MetLife says that its standard life insurance policy could cost a 40-year-old non smoker just over $26 a month.
Myth 2: Providers don’t pay life insurance claims
The idea that life insurance providers don’t pay out could be attributed to negative publicity from the Hayne Royal Commission. But MetLife cites recent statistics from the APRA (Australian Prudential Regulation Authority) which show the outcome for life insurance claims and disputes between 1 July 2019 and 30 June 2020 tell another story. Overall, APRA found that 93% of life insurance claims across all cover types (including death, TPD and trauma) were accepted in those 12 months.
Myth 3: Superannuation life insurance erodes retirement savings
MetLife says rather than eroding retirement savings, cover provided through superannuation can be a more cost effective way for individuals to access life insurance. This is largely due to premium discounts negotiated for group arrangements.
As well as this, the report references a number of ways in which the life insurance industry has worked with regulators to make sure insurance premiums do not eat away at superannuation balances such as the Super Voluntary Code of Practice which includes a cap on premiums, so that they do not exceed 1% of a superfund member’s salary.
Legislative changes were made to superannuation in 2019 to protect superfund members from fee erosion too. These included inactive, superannuation funds with low balances being transferred to the ATO and the ATO consolidating funds on the behalf of individuals.
Myth 4: Life insurance with super is not as good as standalone cover
According to MetLife all superfund members have the option to alter the life insurance cover they receive through their superannuation, to better suit their individual needs.
On top of this, superfund trustees are required to make yearly assessments on whether or not outcomes being delivered promote individual members’ financial interests as part of the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation) Act 2019.
Myth 5: Life insurance cover doesn’t need to be reviewed regularly
Contrary to popular belief, MetLife says a set and forget approach to life insurance is not ideal. Individuals’ situations change over time, meaning how much and what type of cover they have when they first take out the policy may not be suitable in five years time.
As obligations change over the course of a lifetime, so should cover. This could be getting married, having children, increasing or decreasing your mortgage size and so forth. Changing circumstances means a change in risk and cover needs.
Myths busted, next steps
If this has got you thinking about your life insurance choices and what the best option for you might be, start by taking a look at the life insurance options below. Or, if you want to read more about how life insurance works, check out Mozo’s range of life insurance guides.
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