Life insurance in spotlight as living costs hit households hard

Surging living costs threaten the affordability of life insurance for millions of Aussies, as confusion and misunderstandings hurt too.

Almost a quarter of policyholders would consider cancelling their life insurance due to other cost pressures.

Surging living costs are threatening to rob Australians of the ability to afford life insurance, a new study has found.

Insurance safety nets for death, disability and income protection cover are being stretched by battered household budgets, poor understanding and lack of accessible advice as Australia’s supply of financial planners dwindles.

Commissioned by the Council of Australian Life Insurers (CALI), the independent study involved more than 5000 people.

It found more than two-thirds are concerned that cost-of-living pressures will affect their ability to pay for cover.

Almost one quarter of Australians would consider cancelling life insurance because of cost pressures, three-quarters did not realise that it could include mental health cover, and women were feeling the squeeze more than men, it found.

CALI chief executive Christine Cupitt said “people are crying out for help in making decisions about their life insurance, but they don’t have enough qualified people to turn to”.

“When they do find a way to obtain that advice, they are basically waiting in line to pay on average $3000 to see a financial adviser,” she said. “Half of new business last year was written by 480 financial advisers, so there’s a real crisis here in terms of people able to access that comprehensive advice.”

CALI chief executive Christine Cupitt.

Social researcher Dr Rebecca Huntley.

The report underpins the push for fast passage of federal government legislation allowing insurers to provide simple advice on products. It is hoped that consultation and draft legislation will occur within months.

The report says cost-of-living pressures are “coming from every direction” and this makes financial resilience more important than ever. “Women disproportionately feel that cost of living has impacted their ability to maintain insurance cover compared to men,” it says.

Social researcher Rebecca Huntley, who led the study, said a combination of Covid, cost of living and natural disasters over the past five years had prepared people to expect the unexpected and seek resilience.

“We know that women are much more aware of all of the cost-of-living increases across the board,” she said.

“Increasing school fees, increasing streaming services, whatever it might be, they’re more at the coalface of that, so they see what that means.

“The cost of living is an existential threat. In 20 years of research – and I’ve lived through global financial crises – it’s never been this bad, and there’s no expectation that it’s going to end any time soon, even with an interest-rate cut.”

The lack of knowledge about mental health cover from life insurance could be addressed by more open discussions, Dr Huntley said.

“It probably is something that policy makers and the insurance industry more broadly haven’t really spoken about as much,” she said.

CALI says last year life insurers paid more than $12bn to more than 91,000 people, but millions remain unprotected.

“We know we have a growing underinsurance problem,” Ms Cupitt said.

She said the trigger points for taking out life insurance or reviewing your cover included key life milestones such as having children, signing up for a mortgage and starting a business.

Originally published as Life insurance in spotlight as living costs hit households hard