Latest figures show people betting on their life

New analysis of claims statistics by Australia’s largest life insurer TAL shows that many customers are stopping their “living insurance” policies just 1.5 years before when the average claim is made.

The average age a person discontinues one or more of three types of living insurance policies – cover for disability, critical illness/trauma and income protection – is 45 years yet the average age for a claim is 46.5 years.

This analysis for the 12 months to September 2013 for advised policies of living insurance* does not include traditional life insurance where a lump sum is paid upon death.

TAL Group CEO Jim Minto said the figures were disturbing because they demonstrated how these customers who stopped their policies were statistically doing so at the time when they were most likely to need financial protection.

“We know that cost of living pressures are continuing to force people to rethink their domestic budgets but it is very unfortunate that those people who stop their policies for this reason do not see financial protection as essential for themselves and their families,” Mr Minto said.

“Basically, those people are betting that statistical averages will not apply to them so they can use the saved money for some other part of the household budget.

“A family’s future income is their most important asset. If that income stops due to accident or ill-health it can be devastating for a family both financially and emotionally in terms of lifestyle changes that may have to be made.”

The average age a person takes up living insurance is 37.5 years, which means that the average lapse or discontinuance is 7.5 years later at 45 years of age and the average claim is made nine years later at 46.5 years of age.

Additional analysis of income protection only shows that half of all current claims for that category are made within 24 months of the policy being taken out (1 in 2), compared to a claim rate of 40% two years ago (2 in 5).

And, incredibly, the time between taking out income protection and making a claim is now 1.25 years shorter than it was just two years ago, reducing from almost 6 years to 4.7 years.

Mr Minto said this new analysis underlines the industry trend for people to increasingly claim on their life insurance products, with TAL’s own total claim payout figure rising 45% last year to $843 million.

“The increasing rate of life insurance payouts being made is really good news because it demonstrates the value and need of life insurance in protecting customers and their families when they most need it but I do worry about those who stop their policies when they are most likely to need it,” Mr Minto said.

“Life insurance provides peace of mind, helping people sleep better at night, but there is a tangible benefit with claim payments helping people not only protect the life they have created but the one they have dreamed of for the future.”