If you've had the same insurance policy for years, you might be losing money without realising it. A recent report from the Australian Competition and Consumer Commission (ACCC) has revealed a unfortunate trend in the insurance industry that could be affecting your wallet. Let's explore why reviewing your life insurance regularly isn't just a good idea—it's essential for your financial health.
The Loyalty Paradox
Contrary to what you might expect, being a long-standing customer with your insurance provider usually doesn't pay off. The ACCC found that loyal policyholders frequently end up paying higher premiums than new customers for essentially identical coverage. This practice, dubbed the "loyalty tax," affects all types of life insurance products (e.g. term life, total and permanent disability (TPD), trauma insurance, income protection).
Why You're Paying More
Several factors contribute to this pricing disparity:
Competitive New Rates: Insurers often reserve their best deals for new customers, leaving existing policyholders at a disadvantage.
Lack of Information: Your insurer might not proactively inform you about newer, better-value policies that could suit your needs.
The Financial Impact
This pricing strategy hits hardest for those who can least afford it. Older Australians and individuals with pre-existing conditions often find themselves in a difficult position, either unaware of better options or facing barriers to switching insurers. The result? You could be overpaying by hundreds, if not thousands, of dollars each year.
Taking Action: Regular Insurance Check-Ups
To protect yourself from the "loyalty tax" and ensure you're getting the best value, it's important to review your life insurance with your financial adviser every 2-3 years. Here's how:
Reassess Your Needs: As life changes, so do your insurance requirements. Your adviser can ensure your coverage aligns with your current situation.
Navigate the Market: With their industry expertise, your adviser can compare policies and identify better options you cannot find on your own.
Negotiate Better Terms: Financial advisers often have established relationships with insurers and can potentially secure better deals on your behalf.
Consider Switching: If a better deal is available elsewhere, your adviser can guide you through the process of changing insurers.
The Industry's Response
The Financial Services Council has acknowledged report and are committed to addressing these concerns. However, as a consumer, it's in your best interest to be proactive and work with your financial adviser rather than waiting for systemic changes.
Safeguarding Your Financial Future
Regularly reviewing your life insurance with your adviser isn't just about saving money—although that's certainly a significant benefit. It's about ensuring you have the right coverage to protect you and your loved ones when it matters most. By staying informed and proactive, you're taking control of your financial future.
Remember, the ideal insurance policy is one that provides the coverage you need at a price you can afford. Don't let complacency cost you. By making the review of your life insurance a priority with your financial adviser, you could find yourself with better protection and more money in your pocket.
Take Action Today
Now that you're aware of the potential costs of insurance loyalty, it's time to take a closer look at your policies. Contact your financial adviser to schedule a comprehensive review of your insurance coverage. Your financial well-being may depend on it.
When was the last time you discussed your life insurance with your financial adviser? You might be surprised by what they can uncover—and how much you could save.
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