When should you switch life insurance policies?
If you have life insurance, it’s generally a good idea to review your cover details regularly, especially if your income or personal circumstances change. For example, if you get married, have a baby, take out a home loan or start a business, you may decide you need more or different cover. On the other hand, you may decide to reduce your cover if your expenses and debt decrease. For example, if you’ve paid off your mortgage and any kids have left home and can support themselves.
Typically, you can apply to your current insurer to either increase or decrease your level of cover. However, if your current policy no longer provides good value for your situation, you might want to switch to a different insurer.
Types of life insurance
You may also choose to switch insurers if you want to take out a different type of cover. There are a few different types of cover that fall under the broad heading of life insurance in Australia. Depending on your circumstances, one or more of the following may be appropriate.
- Life cover: Also known as ‘term life insurance’, or ‘death cover’. When you pass away and the resulting claim is approved, life cover pays out a set lump sum of money. The people you nominate as beneficiaries on your policy will receive this payout.
- Total and permanent disability (TPD) cover: If you become totally and permanently disabled, TPD cover can pay you a lump sum to assist with rehabilitation and living costs. TPD is often bundled with life cover, either by default or as an optional extra benefit that some insurers may offer.
- Trauma cover: Also known as ‘critical illness insurance’. If you are diagnosed with a specific insured illness or injury, trauma cover provides a lump sum to cover immediate medical expenses and other financial needs. Like TPD insurance, trauma cover is often bundled with life cover.
- Income protection: Income protection cover pays you a benefit, usually monthly, if you are unable to work because of illness or injury. It is designed to replace a set portion of your income (commonly 75% of your gross salary) and will typically pay you at that level until you are able to return to work, or for the agreed period of time (benefit period) – whichever is sooner. Income protection is often bundled with life cover, but can also be bought as a separate policy.
Things to consider before switching
Cancelling an existing life insurance policy is not necessarily a decision to be taken lightly as it could have an impact on how you’re protected in the future. Before making a change to your insurance arrangements, here are some of the factors you may want to have a think about:
- Level of cover – will you be receiving the same level of cover, and is this the cover you need? For example, if your current insurer covers any pre-existing conditions, will your new insurer do this as well?
- Your personal circumstances – your age, current health, and medical history are some of the main factors that most life insurers will consider when you apply for a new policy. Would you be better off staying with your current policy to avoid your pre-existing conditions potentially being excluded?
- Waiting periods – what are the waiting periods associated with the new insurer? You don’t want to leave yourself uninsured at any point.
- Additional costs – find out if there are any extra costs that a new policy could incur.
- Life insurance through super – consider the pros and cons of taking out a life insurance policy within your superannuation fund. Many super members also have a level of insurance in place through their super by default, so consider checking to see if you already have insurance in place via your super.
How to change life insurance policies
If you do decide to make the switch, you can cancel your existing policy at any time. Typically, you can do this by writing to your insurer and providing the amount of notice required. If you cancel your policy within the cooling-off period, you may be able to get a refund of some or all of the premiums you have paid. However, if you cancel your policy after the cooling-off period, you usually won’t be entitled to receive a refund. Be sure to check with your insurer and read your product disclosure statement.
When switching policies, it’s important to ensure you’re protected at all times. MoneySmart suggests keeping your existing cover in place until you have a new policy, so you’re always covered.
Before you change policies, make sure you do your research. To get an idea of what your options are, you can compare direct life insurance policies with Canstar.
If you’re comparing life insurance policies, the comparison table below displays some of the policies currently available on Canstar’s database for a 30-39 year old non-smoking male working in a professional occupation. Please note the table is sorted by Star Rating (highest to lowest) followed by provider name (alphabetical) and features links direct to the provider’s website. Use Canstar’s life insurance comparison selector to view a wider range of policies.
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