As you move through life, your circumstances and goals will evolve and change. That’s why it’s important to review your insurance cover every 12 to 18 months so you can adapt it to your changing needs. A financial adviser can help you assess and adjust your level of cover to ensure it’s always a good fit for you.
Here are five things to consider when reviewing your cover.
1. Check you’re still covered for the right amount
The premium you pay is directly linked to the total amount you’re insured for, so it’s important to check you’re covered for the right amount. When you’re deciding how much life cover to get, you should consider how much money you or your dependants will need.
You’ll want to consider costs such as paying off a mortgage, credit cards, any other debts and ongoing living expenses. If you have children, you should also consider childcare and school fees. And remember, there may also be some funds coming from your super, savings, the sale of investments or your leave balance that you’ll want to factor in, too.
2. Choose between stepped and level premiums
Most policies offer a choice of premium options so you can manage the costs of your cover over time:
- Stepped premiums are calculated each year based on your age. They start off lower in cost and increase as you get older.
- Level premiums are averaged out across the duration of your cover. They generally start higher in cost but end up being cheaper in the long term. However, level premiums can still change or be reviewed.
The option you choose can have a significant effect on the cost of your policy over your lifetime. In general, stepped premiums may be more suitable for younger people planning to hold their policies for a shorter time, while level premiums may be more beneficial if you’re planning to hold your policy for life. It is important to note that regardless of whether you choose stepped or level premiums that the premium rates can be reviewed by the life insurer as described in the policy terms.
3. Choose whether to apply automatic indexation
Over time, inflation can eat into the value of your insurance payout, turning a generous amount of cover into something less than adequate. Fortunately, many policies feature automatic indexation that increases the amount of your cover each year to help safeguard you from inflation.
However, that can also mean you have to pay for that additional cover on top of your original cover. So if you’re concerned about the cost of your policy, or you think your need for protection will decrease over time, you may want to consider declining the indexation option.
It’s important to note that not having indexation does not mean you will pay the same premium every year.
4. Check whether you’re paying unnecessary loadings
Loadings are additional risk added to your premium if there are factors putting you at higher risk, such as smoking, dangerous hobbies or occupations, or a high Body Mass Index (BMI). This means you pay a higher premium than someone who doesn’t have these risk factors.
So, if your health improves, or you’ve stopped smoking or skydiving, it’s time to review your policy to confirm if any loadings can be removed, potentially making your policy more affordable.
It’s also a good idea to regularly review your policy for exclusions that are no longer required. For example, you were struggling with a back issue and so had a back exclusion on your policy, but your treatment is now finished, and you haven’t had symptoms for a few years. Subject to underwriting criteria, your insurer may be able to remove the exclusion from your policy.
5. Ask yourself these questions when reviewing your cover
Every 12 to 18 months, we recommend asking yourself if your insurance cover still suits your needs.
- Has your family situation changed? Families come in all shapes and sizes. Your family may be a same-sex couple, a rainbow family or an extended rainbow family. It may be time to add a new beneficiary to your policy. Or you may want to think about increasing your amount insured to cover your growing family’s future needs and your increased financial responsibilities. It’s easy to change your cover as your needs change.
- Have you changed jobs or got a promotion? If your income has changed, your future needs have likely changed, too. This is especially important if you have income protection. This is because your benefit amount and the premium you’re paying are directly linked to the personal income and occupation that’s recorded on your policy, so ensure your cover is right for your current situation.
- Have you paid off any large debts? If you’ve paid off a large debt such as a mortgage, congratulations! It may also mean you could consider reducing your insurance cover as that’s one expense you and your loved ones won’t have to worry about in the future.
- Have you taken on any new debts? If you’ve taken out a loan to buy a house, do a renovation, start a business or just go on holiday, then it’s important to make sure your insurance will still cover your debts should something happen to you.
