Having the correct amount of insurance for your unique financial circumstances is a cornerstone of ensuring you’re able to tackle whatever financial challenge life may throw at you. But what about the horror stories of life insurance companies refusing to pay-out, even when the evidence is against them? Exactly how realistic are they?
Well, not at all. In fact, in research done by ASIC and APRA, it was found that, between 2016 and 2021, between 92% and 94% of all life insurance claims were paid without fuss.
This article breaks down everything you need to know about the reality of life insurance, including the average wait times and benefits of advised insurance, to help you make a more informed decision about the benefits of life insurance in your financial world.
What are the different kinds of insurance?
Life insurance companies typically offer a number of different policies, including:
- Death/Terminal Illness Insurance: a benefit paid to your loved ones (your estate) when you have passed OR it can be paid to an individual before death if a doctor certifies they have less than 12 to 24 months to live.
- Total and Permanent Disability (TPD) Insurance: a benefit that pays a lump sum if something happens to leave you totally and permanently disabled – this is often when two doctors/medical professional sign-off to say you are unable to go back to work.
- Trauma Insurance: a benefit that pays a lump sum amount if you suffer a critical illness or serious injury. Unlike TPD Insurance, trauma insurance payments are intended to enable you to heal and eventually return back to the workforce. Common cliams on trauma policies include cancer, heart attack and stroke.
- Income Protection Insurance: a monthly benefit that pays part of your lost income if you’re unable to work because of a disability caused by illness or injury.
What’s the difference between advised insurance vs. non-advised insurance?
The benefits of advised insurance, that is an insurance policy recommended to you by a financial adviser based on an assessment of your current financial circumstances (compared to just finding something generic online), include: future increase benefits, buy-back benefits and premium holidays, just to name a few.
But one of the most important benefits of advised insurance is the relationship that exists between your financial adviser, who acts as an intermediary, and your insurer. By having a pre-existing relationship in place, your adviser can often smooth out any potential bumps in the road that may stop a claim being successful. Think about it: advisers refer policies to insurers based on the best interests of clients. It is therefore not in insurers’ interests to be difficult at claim time. Compare that to you spending hours playing whispers down the grapevine with call centres. In fact, ASIC found that fully underwritten insurance policies taken out through a financial adviser or broker had a much better claim to payout ratio than direct life insurance.
How long do insurance providers take to pay out a claim?
While studies done by ASIC and APRA highlight how more than 90% of all life insurance claims are paid across the industry, the time it takes insurance providers to pay out a claim depends on the type of claim being paid.
In 2021, the average wait time for a claim to be accepted and the acceptance rate per claim type across the industry were:
- Death/Terminal Illness Insurance:
- Industry Acceptance Rate: 97.1%
- Average Wait Time: 1.5 months
- TPD Insurance:
- Industry Acceptance Rate: 82.5%
- Average Wait Time: 7.4 Months
- Trauma Insurance:
- Industry Acceptance Rate: 86.8%
- Average Wait Time: 1.7 Months
- Income Protection Insurance:
- Industry Acceptance Rate: 95.0%
- Average Wait Time: 1.6 Months
What rates do insurance providers typically pay-out?
The amount that insurance providers typically pay-out is dependent on your particular insurance provider and the details of the type of insurance you’re claiming on. However, as a general rule, Death/Terminal Illness and Income Protection insurance typically provide a higher claims pay-out than TPD and Trauma claims.
For more detailed information on the rates that insurance providers typically pay-out, we highly encourage you to reach out to a financial adviser, as they’re in the best position to provide you with knowledge and advice tailored to your unique financial circumstances.
Ready to learn more about life insurance for yourself?
Life, TPD, Trauma and Income Protection insurance are designed to protect your loved ones against life’s unexpected challenges.
To get started with exploring insurance for yourself, all you have to do is to get in touch with a financial adviser, who will work with you to create a comprehensive insurance plan that ticks every single one of your boxes.
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