Is Life Insurance Too Expensive?

A simple question forms the basis of our latest adviser poll:

Is Life Insurance in Australia Too Expensive?

While the question is simple, determining the answer may not be as easy.  We had re-affirmed for us this week that the number one reason the main income earner in a household does not have life insurance is because it is too expensive (see: Life Insurance is Too Expensive – Consumers).  TAL tells us that the ‘too expensive’ reason (or excuse?) is the main driver for not taking out life cover – by a significant margin, followed by: not having any dependents to protect, and the belief that health insurance provides the same level of protection.

(As a side issue, will consumers view the soon-to-be-implemented National Disability Insurance Scheme as another reason not to secure life insurance cover appropriate to their needs?)

But back to our poll – do you think the cost of life insurance in Australia is literally too expensive for consumers?  Or do you think it is only perceived to be too expensive when, in reality, it is not?  Does this distinction even matter, when the end result is the same, ie: consumers aren’t buying?

The industry is presently engaging in a heightened debate on the issue of sustainability.  It is reported that policy lapse rates are heading north and that claims experience losses are increasing, particularly within the income protection market.  These trends combine to create an argument that life insurance premiums in Australia are, in fact, too low!

The question becomes more involved when taking into account the expanding variety of life insurance products that are being launched into the market, via multiple channels.  Some are ‘advised’, comprehensive, life insurance solutions, while others by-pass the adviser and are delivered direct to the end user, or via group insurance and industry funds.  This doesn’t mean that direct or group products are necessarily cheaper or offer better value, but it does highlight the growing variety of options available to the public.  Yet it seems that, while overall industry sales are still growing, a significant proportion of consumers are still resisting – mainly based on affordability issues.

How can/should this issue be addressed?  If ‘affordability’ is just a perception issue, then it seems the industry continues to be challenged by its long-time inability to truly engage with the mass market.  If pricing is indeed too high, how does the life insurance sector manage this issue at a time when there is upward pressure on premiums?

For the time being, tell us whether you believe consumers are paying too much for their life insurance coverage, or whether you think they are getting good value today for the premiums they pay…