Ask most people about life insurance, and you are likely to be greeted with a groan. For some, it’s a topic which is irrelevant because life is for living. Others feel they are too young to worry about it. And others still would rather leave it to their employers, who they think is paying the premium.
In reality, all of these responses show a lack of understanding about a kind of coverage that is just as important as car, home and any other kind of insurance protection. This is a little surprising. Life insurance is not exactly a new product, and there is a countless amount of information freely available that can state the facts and guide people to making a decision. It’s fair to say that most Australians are simply confused thanks mainly to poorly put together documents and stories of first-hand experience that often contradict each other.
According to a 2012 study carried out by Macquarie Adviser Services, Australians generally have no confidence in making decisions about life insurance. The vast majority of participants (80%) admitted they were most confident when they discussed options with a financial planner and preferred to meet advisers in person. Only 14% were happy with getting advice over the phone. This all points to a reluctance to make decisions independently, which perhaps influenced the fact that 45% of participants without life insurance believe it is secondary in importance to health insurance.
In another survey into Australians’ attitudes to life insurance, carried out by OnePath Life in 2008, some 41% of participants claimed the policies were too complicated and 25% admitted they didn’t know where to start. It also revealed that a lack of understanding prevented 33% of Australians from getting life insurance outside their work-based superannuation fund.
Yet it’s something that almost everyone needs and not having it when you need it can be devastating to your family’s well-being. So, what are the common misconceptions that drive people away from taking out a life insurance policy? Here we have put together a list of just 5 of the top ones.
Five common misconceptions about life insurance
- It’s too expensive – Usually, the first thing that enters a person’s mind when it comes to considering insurance is how much it is going to cost. In the same 2008 OnePath survey, results showed that 81% of Australians believe that life insurance is too expensive, but that 61% also tend to overestimate the cost. In their Life Insurance Report from 2010, Lifebroker discovered that men tended to overestimate costs by 49% and females by 65%. In reality, life insurance is amongst the lowest-costing insurance policies on the market, on average costing less than car insurance, less than home insurance, and significantly less than private health insurance.
- I’m too young for that – To be honest, this is one of the worst misconceptions. Unfortunately, no one is immortal and the immortality of youth tends to fuel the “it’ll never happen to me” belief. The statistics show that while most young people are less likely to be affected by a terminal illness (for example cancer) some still do. Meanwhile, the stereotypical young person’s lifestyle involves taking risks, which means serious accidents and debilitating (if not fatal) injuries are very possible. According to statistics provided by the Australian Institute of Health and Welfare, in 12 months between 2011 and 2012, 14% of the 604,000 hospitalisations due to injury were accounted for by 15-24 year olds, while in 2012, young men accounted for 75% of road traffic accidents leading to death or serious injury. Add to that the fact that 63% of Australians aged 18 and over are overweight or obese – 70% of men in the 25-44 age group. However, the younger you are when you first take out a life insurance policy, the lower the cost is going to be.
- Insurance from my job is fine – Generally, under close examination, this usually proves not to be the case. On the face of it, everything might seem fine with as much as double your annual salary available when the policy matures. That figure can double again, if your employer offers you the chance to do so. But the problems lie in the fact that the salary on which the figures are calculated are the basic amount. It does not include things like commission and bonuses. If your take-home pay is largely bonus-based, then the payout is not going to be enough. An added concern is the effect on dependants (especially if they are young). An income is needed to look after them as they grow, prompting experts to suggests insurance offering as much as 10 times your annual income may be needed. Converting to a personal policy that satisfies your needs is possible, but the costs may prove very high. Getting a completely new life insurance policy is often the best move, with cheaper costs and higher payouts out there to choose from.
- Only breadwinners worry about that – There is no reason why only the main income-earner should get life insurance. It’s open to everyone. The terms may differ, but the entitlement to get protection is the same. Housewives and stay-at-home mothers, for example, may not earn a salary for the work they do, but their essential role means (should they die) a replacement needs to be found. Someone may need to be hired and paid to manage the home or look after the children, but not every breadwinner would have enough to pay for these professionals. So, protecting against the loss of such an important figure at home makes a lot of sense. Other situations include the loss of a secondary income, which may have a genuine detrimental effect on the household.
- My health is too poor anyway – Very few people enjoy perfect health, so the idea that having an illness means you cannot get life insurance is incorrect. There are companies that cover a range of health conditions and some even specialise in high-risk cases. You can also purchase a policy that is not medically underwritten at all. Terms will differ, and yes, they tend to be more expensive but the protection can make a real difference to family and loved ones.
For some further reading on this subject, take a look at:
- Lifebroker’s full Life Insurance Report 2010
- Superannuation facts at gov.au
- How Life Insurance works with Lifewise
- Open Family Australia’s practical Life Insurance Guide
Life insurance from Hamilton Brokers
When it comes to life insurance, Hamilton Brokers is recognised as a leading broker in the ACT, providing some of the most comprehensive insurance policies to residents in Canberra, and beyond. Offering fast and simple online applications, high coverage and flexible policy ownership options, they can tailor packages that suit your pocket, and provide expert advice to ensure you choose the right coverage.
This information may be regarded as general advice. That is, your personal objectives, needs or financial situations were not taken into account when preparing this information. Accordingly, you should consider the appropriateness of any general advice we have given you, having regard to your own objectives, financial situation and needs before acting on it.