Will your life insurance be there when you need it?

Published on October 14, 2016 1:00 pm, by

Life insurance is supposed to help protect us and our families if we die, or suffer an illness, injury or disability.  But what if the unexpected happened and our claim was denied?  Would our life insurance be there when we needed it?

Over the past few months there have been several well-publicised cases where life insurers have refused to pay claims to customers and earlier this week ASIC released a report into the claims handling processes of life insurers.

ASIC looked at claims for 4 main types of life insurance – life cover, total and permanent disability (TPD), trauma and income protection.  Their findings are concerning. They found inconsistencies in the claims process across the industry and sometimes within the same insurer. The actual number of claims that are declined varies significantly between insurers and insurance types.

The type of policy causing the highest level of concern is TPD, with average claim decline rates varying between 7% and 37%.

If you took a policy out through an adviser, chances are you’re more likely to have your claim paid out. On average the percentage of claims declined when taken out through an adviser were between 7 and 8%. Policies taken out directly from the insurer had an average claim decline rate of 12%.

Insurance companies aren’t named in the report; however, some have much higher average decline rates than others. TPD decline rates across 3 insurers were 37%, 25% and 24% compared to the industry average of 16%.  Similarly, trauma cover with 31%, 25% and 24% compared to the industry average of 14%.  The top average decline claim rates for income protection were 16%, 11% and 11% with the industry average of 7%.

Life insurance had the lowest average claim decline rate at 4%.

There were also concerns raised about the dispute process with half of them raised due to evidence or delay.  It was identified that the same insurers that had high dispute rates across both, signally some deficiency within their systems.

What is coming out of this review?

ASIC has made a number of recommendations to the insurance sector that you can find contained in their report.

Is there anything I should do?

If you have a life insurance policy that you obtained through an adviser, it’s a great idea to use some of the time in your next review to make sure you understand the policy that you have and what limitations it might have.

If you took an insurance policy out directly through the insurer and now have an adviser, get them to take you through it. Otherwise, it’s worth reading through your policy documents and making sure you are clear on what happens in the event you need to claim on the policy and if there are any limitations that aren’t acceptable to you.

Source: Australian Securities and Investments Commission (ASIC), Report 498 Life Insurance Claims: An industry review October 2016

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Jen is an experienced banking professional who loves wine, coffee, finding a bargain and of course her three beautiful children. Since Jen's first budget led her to buy a home at 20, Jen has passionately helped others to make better decisions with their money.

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