Are we being ripped off by life insurance?

Life insurance costs Aussies thousands per year, but is it really worth it?

Is life insurance a good investment, or a total rip off? The Royal Commission has turned its focus to life insurance this week as the costs for many Australians are well into the thousands.

TODAY spoke with Graham Cooke from finder.com.au.

TODAY: Graham — is life insurance really worth it?

COOKE: Whether life insurance is worth it for you will depend on your current life stage and family situation. What you’re really paying for is peace of mind — in the end, you never want to have to use your cover. The costs start at about $4 a week for 30-year-old women and $6 a week for men, around the cost of a coffee per week. But can get more expensive if you’re older or if you’re a smoker — so it’s up to you to decide if this represents good value.

TODAY: What about if you have a pre-existing condition?

COOKE: It’s very important to make sure that any pre-existing conditions are mentioned when you take out life insurance. Be particularly careful when it comes to policies where you qualify automatically without any medical checks. These can be the ones where you may run into difficulty with pre-existing conditions.

TODAY: When should we start our life insurance, and when should we stop?

COOKE: Since life insurance is mostly about protecting your dependents and protecting your income if you cannot work for a period of time, generally, we find that Australians tend to take out life insurance around life stages when they start to gather people around them who would be dependent on their income. Events like getting married, having children or buying a home tend to trigger life insurance purchasing decisions.

TODAY: So how much can we expect to pay?

COOKE: Prices start from around $4 per week for a $500,000 life insurance package. The actual price you pay will be dependent on a few things. Men will generally pay more than women, older people will pay more than younger people, and smokers will pay a lot more than everyone else. If you give up smoking, you can generally cut your life insurance premiums in half. The best thing to do is to compare your options online, where you can compare policies side by side.

TODAY: How can we avoid being ripped off?

COOKE: There are a couple of areas where it pays to be careful. For those buying life insurance directly, be aware that your premium can go up every year. This can be quite expensive in the long run. Policies are available with locked-in fees, which will be slightly higher initially but could save you a lot down the line.

Secondly, be cautious if you are relying on life insurance that comes bundled with superannuation. Not only can the fees for this insurance eat up a lot of the profits your super earns, but these policies don’t necessarily offer the best value on the market. You might get better, cheaper cover on the open market.

TODAY: For those considering switching companies, is it simple to do?

COOKE: Yes — it’s very easy to switch insurance companies. Companies are obliged to make it easy for you to switch. A simple phone call is all it should take.

* In highlighting particular offers we are not making specific recommendations as this article does not cover all available products and may not compare all features relevant to you. Any advice provided is general in nature and does not take account of your needs, objectives or financial situation. Individuals should consider their own circumstances, and if in doubt seek appropriate advice, before proceeding.