Why Australians are confused by their life insurance policies

MILLIONS of Australians with life insurance are in the dark about how it protects them, new research suggests.
A study by NobleOak Life found that 27 per cent of consumers do not know what is covered by their life, total and permanent disability, income protection and trauma policies, with many of them confused.

And more than 20 per cent are not confident that they would be paid if they had to make a claim.
NobleOak CEO Anthony Brown said the findings were “very concerning”.
“The reality is life insurance people can use a lot of jargon, and life insurance is often not well explained over the phone if you buy from insurers directly,” he said.

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NobleOak Life CEO Anthony Brown says there has been a drop in confidence. Photo: Hollie Adams
NobleOak Life CEO Anthony Brown says there has been a drop in confidence. Photo: Hollie AdamsSource:News Corp Australia
“Insurers can be more interested in selling you a policy instantly than outlining what you are getting covered for.”
The research comes as the Federal Government flags changes that will make it easy for Australians to opt out of the life insurance component of their superannuation.
Financial Services Minister Kelly O’Dwyer said it was currently difficult to opt out of insurance, which was eroding some workers’ savings.

“It can be a very big problem, particularly for young Australians who might have more than one fund as a result of having part-time work and being forced into multiple fund arrangements,” she said.

Mr Brown said confusion about life insurance was also caused by overtechnical product disclosure statements.
There has been criticism about some cheap policies sold over the phone with very few medical history details collected.
Instead, the underwriting happens if a claim is made, resulting in some claims being rejected.
Reports of rejected insurance claims by some big companies also have affected people’s perceptions.
“We have noticed a sharp drop in consumer confidence about claims being paid over the last year, largely as a result of bad publicity with respect to a couple of the larger insurers not paying claims quickly — or at all,” Mr Brown said.
Life insurance policies pay you and your family money if you become ill, disabled or worse.
Life insurance policies pay you and your family money if you become ill, disabled or worse.Source:Supplied
Wealth For Life Financial Planning principal Rex Whitford said Australians’ lack of knowledge about life insurance was not surprising given that most people did not want to think about death or disability.
He said people could avoid worries about claims being rejected by getting good advice.
“I have never had a genuine claim not paid,” Mr Whitford said.
“A quality adviser will hold your hand and get the job done.”

Mr Whitford said some policies were cheap for a reason. “The fly-by-nighters are cheap because they trying to capture market share. And they’re cheap because they never pay,” he said.

Medical history should be checked when starting a policy, not after a claim when it could dramatically increase stress. “Who needs that? If you are on your death bed, that would probably kick your over the edge,” Mr Whitford said.
“You need a strategy — a properly crafted plan relating to your own personal circumstances.”
Mr Brown said there were several information sources to find out about life insurance, such as the independent lifewise.org.au website, or popular comparison sites such as Canstar or Finder.

He said people should shop around for the right policy and get quotes from different insurers while comparing terms and conditions. NobleOak recently launched a guide to life insurance.
“You need to be wary of exclusions in some policies, such as pre-existing condition exclusions. I suggest you ask the insurer if there are exclusions you should know about.”