The cost of living crisis is biting hard. Evidence of this is shown in recent company reports. Major bank NAB said loan payment arrears have increased sharply this year. AGL and Origin Energy say arrears and bad debts on energy accounts are rising quickly. 

The cost squeeze is forcing people to review their spending and cut out non-essential expenses. One item that may be seen as disposable by some is life and personal insurance. It’s a cost that doesn’t produce any return – unless a disaster happens. Then it’s invaluable.

Life insurance company TAL’s annual report says the company paid out $4.2 billion, that’s $4,200 million, to 50,128 insured clients and their families in the last year. That’s huge.

Of the claims paid, 20 per cent were for mental health, which a Council of Australian Life Insurers report says are increasing due to the cost-of-living pressures. Another 17 per cent were for cancer and 15 per cent for injuries.

Clearly, some people do draw the short straw. No-one should assume they are bullet-proof and it won’t be them. It may be. How will the family cope if they are permanently disabled or die? What if their income stops due to cancer or mental illness?

If they have mortgages, debts, and young children, it is likely they will lose their home without life and disability insurance. People can call on Centrelink for benefits if a disaster should happen, but try living on the Jobseeker Allowance. It is very small. 

Most insurance can be owned and paid for by a person’s super fund, requiring no personal payment. Some funds provide a default amount of insurance cover automatically. While welcome this is rarely enough. For a young person it might be $200,000 of death and disablement cover.

If they have young children and a typical mortgage of say $600,000, that isn’t nearly enough. Paying premiums will slow the growth of their super account, but that is better than taking the risk and going uninsured. Most super funds allow members to apply for extra cover.

In some cases the cost of insurance can be reduced. Check that the occupation, smoking status and health conditions in the policy are current. If not, have them updated. The cost of Income Protection insurance can be lowered by increasing the waiting period before payments start.

The amount of cover can often be cut back as the mortgage reduces and children get closer to independence. Less may be needed when premiums start rising sharply. Professional advice can help find the best solution. Adviser fees can usually be paid by the insurance company or the person’s super fund.