Life Insurance: Taking The Confusion Out Of Cover

IN THIS INAUGURAL REPORT WE LOOK AT:

• Taking the confusion out of cover
• Which insurers came out on top?
• Not D.I.Y.
• What we researched: products explained
• A game of chance?
• Tipping the premium scales
• How to use CANSTAR CANNEX star ratings

Most people agree with the concept of life insurance but don’t actually get around to investigating it any further because, to be honest, it’s perplexing and thus easy to relegate to the ‘too hard’ basket. CANSTAR CANNEX has taken on the formidable task of researching and comparing all products under the life insurance umbrella – Term Life insurance, Trauma insurance, TPD (total and permanent disablement) insurance, Packaged Life insurance, and Income Protection – to help consumers better understand the products and how they are designed to benefit individual situations.

We have used our proven star ratings methodology so you can be confident in our five-star-rated insurers and products. Because there are so many variables involved with individual situations, we have researched only products which have been pared back to start with general assumptions, or what is known as ‘normal’ in the industry. Outside that, it can be expected that policies and premiums will change according to perceived risk by the insurer. The important point to remember is not to be discouraged by the fact that you may consider yourself a high risk because of, say, a history of health issues. There are life insurance products available that are designed specifically for circumstances outside the norm and you may be surprised just what is on offer when you look into it.

WHICH INSURERS CAME OUT ON TOP?

After careful collation of results from 15 insurers included in our research, ING Life stood out for consistency across Australia in all five categories – Term Life, Trauma, TPD, Packaged Life insurance and Income Protection insurance. ING Life was awarded CANSTAR CANNEX National 5 Stars for Overall Best Value Life Insurer after the company figured prominently among the top insurers in each individual product and occupation categories. This strong performance across the board resulted in overall top honours.

Drilling down at an individual product level we found ING Life was joined by Tower Life Australia, Macquarie Life, CommInsure and AMP Life as offering 5-star superior products in what was often a very close contest. In fact, we could not separate two insurers in the highly competitive category of Income Protection. As a result, we have awarded the Best Value Income Protection to both ING Life and CommInsure.

In the occupation categories, ING Life triumphed in three out of four 5 star awards, those of Best Value for the Professional, White and Blue Collar sectors. Macquarie Life took out the award for the Light Manual section which also includes retail and hospitality.

These insurers demonstrated broad and deep value offered to consumers through a network of financial planners and deserve our congratulations for the consistent service they provide to the Australian population.




National 5 Star Category Awards
Best Value Insurer Term Life - Tower Life Australia
Best Value Insurer Trauma - Macquarie Life
Best Value Insurer TPD - AMP Life
Best Value Insurer Packaged Life - Macquarie Life
Best Value Insurer Income Protection - CommInsure & ING Life

National 5 Star Occupation Awards
Best Value Life Insurer - Professional - ING Life
Best Value Life Insurer – White Collar - ING Life
Best Value Life Insurer – Light Manual - Macquarie Life
Best Value Life Insurer – Blue Collar - ING Life

NOT D.I.Y.

By conducting this research and rating life insurance products, CANSTAR CANNEX aims to help consumers better understand the life insurance suite of products and the benefits they offer. At the outset we should stress that no matter how much we demystify life insurance products, these are not, and may never be, products you should buy without individual, professional advice. The risk of getting it wrong means the involvement of a licensed financial planner is essential in the mix. However, the depth of research CANSTAR CANNEX has done and the insights we can provide will give the consumer much more information and knowledge which will be useful when taking that next step and talking it over with a planner.

WHAT WE RESEARCHED

1. TERM LIFE INSURANCE: This is death cover which provides a lump sum payout of money on death or on diagnosis of a terminal illness that will end in death within 12 months.
   
   PURPOSE: Eliminates likely financial hardship after the death of a spouse, particularly the breadwinner. Pays outstanding debts, such as mortgage, and leaves a lump sum to be invested to cover the cost of future family needs such as children’s education.
   
   
2. TRAUMA INSURANCE: Provides a lump sum of money to assist you if you happen to be diagnosed with any of the defined events in the policy such as cancer, heart attack, stroke etc.
   
   PURPOSE: Eliminates financial hardship so you can concentrate fully on recuperating and making any necessary lifestyle changes. The money pays debts, medical costs and a lump sum to be invested to cover lifestyle changes, e.g. wheelchair access to be built at home.
   
   
3. TPD - Total and Permanent Disablement: Provides a lump sum of money if an accident or sickness leaves you unable to work in your own or any other occupation again. While not working, TPD can cover you if an accident or sickness, e.g. paraplegia or depression, results in you not being able to live without assistance.
   
   PURPOSE: Eliminates financial hardship in the wake of being unable to work again. The money pays debts and leaves a lump sum to be invested to replace income. Provides financial assistance to ensure your needs are taken care of and your family continues to maintain their existing lifestyle.
   
   
4. PACKAGED LIFE INSURANCE: The three insurance products listed above – Term Life, Trauma and TPD - are sold separately but they can be packaged together in one policy with one company.
   
   PURPOSE: Cover is provided for each event. Advantage may be gained through a lower premium.
   
   
5. INCOME PROTECTION: This cover provides a regular payment, generally per month in arrears. It will replace 75% of your usual monthly income when you are off work due to accident or sickness. Premiums paid are generally tax deductible, whilst any claim benefit received is income tax assessable.
   
   PURPOSE: To eliminate hardship and protect your family’s lifestyle by providing a replacement income, should an accident or sickness strike the breadwinner.

A GAME OF CHANCE?

Contrary to what you may think, life insurance company executives don’t sit around reading the tea leaves of possibility and probability in order to determine their risk exposure. The industry relies on a solid bank of up-to-date statistics and data to assess general scenarios such as when a person most likely will die, sustain an injury, contract an illness, whether temporary or permanently debilitating, or be unable to work. This data is used by life insurers to work out the cost of premiums that will cover the risk or chance of something happening to you. At this point you are considered to be normal, healthy and working in an occupation where there is a minimal risk of having a work-related accident. Complications enter from this point on, as everyone has their own unique circumstances that affect the premium they pay to ensure future financial hardship will be alleviated, should the unforeseen happen.

TIPPING THE PREMIUM SCALES

Not everyone fits into the normal, healthy person in a safe job category so it’s interesting to know what factors can increase or decrease your premium, according to perceived risk.

• AGE: This one’s a no-brainer. It is simply the older you get the more cover costs, as a general rule. There are periods in life, however, when we pass youth’s wild, adventurous day and settle into more mature behaviour which may result in your premiums costing less. Sadly, premiums start climbing again as we grow older.
  
  
• GENDER: It’s a well-known fact that a female has a greater life expectancy than a male. Hence the cost of death cover is greater for a male. For income protection, however, the cost of cover for a male is less than that of a female in the same occupation. That’s because claims statistics show women suffer a greater amount of sickness, whereas men tend to have more accidents.
  
  
• OCCUPATION: The job you do definitely has a great influence on risk and premium cost, particularly when covering the possibility of total and permanent disablement and for lost income caused by accident and sickness.
  
  CANSTAR CANNEX has used four common industry group definitions in its research. These are:
  
  
  
  
  
• Occupations can increase or decrease rates and in fact, some occupations are considered too risky to insure. It’s important here to remember that the occupation name helps in classifying the occupation group you may fall into, but it’s the actual duties or activities you do in the job that increases or decreases the risk from what is considered normal. For example, an electrician who works on an oil rig is very different from the local electrician who spends the majority of his time organising quotes while his sons carry out the day-to-day sparky work.
  
  
• SPORT, PASTIMES, RECREATIONAL ACTIVITIES: Most recreational pastimes and pursuits are generally covered without restriction by life insurance companies. The more risky activities, however, particularly if they are undertaken regularly, will cause the insurers to sit up and take notice. For instance, if you’re addicted to base jumping or deep-sea diving, you’re on your own. Other activities considered ‘on the edge’ such as bike, car or yacht racing will be either excluded or attract a premium loading, depending on its status as an organised event.
  
  As a general rule, insurers are cool with the occasional amateur activity but if you do it on a regular basis, it can be another thing altogether. That means you should have nothing to worry about if someone gives you a gift of a parachute jump but if you decide you love the sport, be aware that if you jump out of a plane, say, over fifty times, you’re likely not to have coverage, or at least pay a premium loading, on some of your life insurance products, such as TPD and Income Protection. Individual consideration is factored into an insurer’s decision and your financial planner is the best person to talk to in order to ascertain if your recreational activities are considered standard or otherwise.

STRUCTURING YOUR LIFE INSURANCE

Each insurance company has different rules for their products such as sum insured limits on Term Life, Trauma and TPD Insurance. For instance, prominent insurance company, Asteron has a rule on one of its products called Recovery which states the Trauma sum insured must be of the equivalent amount as the Term Life or TPD sum insured amount. This rule does not make the policy any less superior but the ruling affects the way the policy must be structured and, in turn, effectively excludes the product from comparison in CANSTAR CANNEX’s Packaged Life 5 star ratings.

This is one example of why it is so important to seek advice from a licensed financial planner as he or she will be aware of these product rules and will not only be able to recommend how much cover you require but also recommend a suitable strategy for you.

Here are some example strategy questions to ask your planner:

• Can I place my life insurance in a tax effective manner?
• How can I place my life insurance in a cost effective manner?
• Is my life insurance better inside or outside of Superannuation or as a combination of both?
• Can you provide me with a stepped and level premium comparison?

Level premiums for the younger age group can sometimes be more favourable. Some companies, such as MLC, heavily market this option. Because CANSTAR CANNEX’s star ratings are based on stepped-only premiums, it’s worthwhile discussing comparisons with your planner.

HOW TO USE CANSTAR CANNEX STAR RATINGS

The first-ever star ratings of life insurance products by CANSTAR CANNEX was a huge effort, way beyond the scope of ordinary consumers. That’s why the report is so important and a valuable resource for those who are serious about comparing insurers and products. CANSTAR CANNEX provides a full list of star rated products, from 5 stars down for complete and fair comparison.

An important point to remember at this stage is that under no circumstances whatever should you ever cancel cover without replacement cover being confirmed and a Policy Document received.

In looking up suitable cover for you or to check out how your current insurer rates, an added bonus is that you’ll find out a lot more information along the way, thanks to stories, hints and tips, comments and video clips on our life insurance page. This will arm you with a lot more knowledge on the subject of life insurance and you will be better prepared when you consult a licensed financial planner.

To customise your list of star-rated life insurance products, simply enter your Occupation Category, your Age Category, Gender, and the type of Cover you are interested in. After you hit the View Ratings button, you will then bring up a list of star rated products worthy of further investigation with your financial planner.

LIKE TO KNOW HOW WE DID IT?

For more in-depth information on how we conducted this report, read our methodology (PDF).


Life Insurance ...