COVID-19 and the importance of Life Insurance


The advent of a global pandemic in COVID-19 has been a shocking event in many ways, more obviously from a health perspective. COVID-19 is clearly a highly dangerous virus for those over 70 and those with existing health conditions. Having said that there have also been cases of people who are both relatively young and healthy becoming seriously ill and on occasions sadly succumbing to the virus. This current situation more than ever lends itself to the consideration of life insurance, both in terms of its relevance, as well as any impact COVID-19 might be having on life insurance policies themselves.

What are we talking about when we say Life Insurance?

Life insurance offerings include 4 basic types of cover –

  • Life Insurance:  provides a lump sum payment in the event of death and is designed to protect your family.
  • Total and Permanent Disablement (TPD) Insurance:  provides a lump sum payment if you become totally and permanently disabled. It is designed to help cover rehabilitation costs, repayment of debts, and the cost of living for you and your family.
  • Trauma Insurance: provides a lump sum payment in the event you suffer a medical trauma that impacts your life and lifestyle. This might include things like a stroke, heart attack, loss of limbs etc.
  • Income Protection (IP) Insurance:  provides a payment up to 75% of your salary for a period if you’re temporarily unable to work due to sickness or injury.

Why is Life Insurance so important?

First and foremost it provides protection for you and your family. It means the people who matter most in your life may be protected from financial hardship if the unexpected happens. Importantly, it also reduces stress during difficult times. As has been illustrated by COVID-19, none of us know what lies around the corner. We are all currently living through this tragic event and having insurance cover in place means there is just one less thing you have to worry about. Unforeseen tragedies such as illness, injury or permanent disability, even death – can occur. Even if COVID-19 was not a current issue, most of us might know someone who has been struck down with serious injury, illness or even death well before their time. With the right insurance in place, you or your family’s financial stress may be further reduced, and you can focus on recovery and rebuilding your lives. Finally, insurance cover can be part of the legacy you leave behind. A lump sum death benefit can secure the financial future for your children and protect their standard of living.

What has been the impact of the Coronavirus (COVID-19) on Retail Insurance?

For the retail life insurers that we work with there is no meaningful impact as it relates to COVID-19. For existing clients, there are no exclusion clauses around pandemics and the like that would affect any valid claim. This is not necessarily the case, however, with some group life insurance policies (typically offered by your Super Fund) and direct life insurance policy offerings (typically available online), where there appear to be some potential exclusions. One key difference here is that the life insurers we work with here at IOOF all offer guaranteed renewable contracts, which means that once you have cover in place with these insurers, the contract cannot be changed in any way to your detriment.

What if I have or were to have COVID-19?

Having COVID-19 in itself is not a claimable event, but if it led to your death or complications that gave rise to a claimable event or conditions across TPD, Trauma, and IP, then any valid claim would be paid for any client that already has cover in place . The one key thing to note is that if you are about to commence a new application with one of our approved insurers there may be some underwriting questions in relation to COVID-19. It is important to note that if you have been diagnosed with COVID-19, or you are in mandatory self-isolation, you will likely not get cover until you have been completely cleared of the virus. Please discuss this with your adviser if you are in this position.

Are our approved insurers financially strong and able to pay claims given market volatility and a likely recession?

The Australian Prudential Regulatory Authority (APRA) requires that insurers have capital in place to pay claims that can support a 1 in 250-year event. All of our approved insurers have capital at between 150%-250% of these mandated levels by APRA, giving us great confidence in the capacity of our insurers to pay claims both now and over the longer term. This in turn should give you greater piece of mind.

What are my options if I’m struggling to afford my insurance premiums?

Talk to your adviser. They’ll be able to run you through a number of different options and strategies to help you with budgeting and cashflow more generally, as well as specific options with your insurance. This may include looking at different ways to pay your premiums such as funding more of your premiums from Super, potentially reducing levels of cover to better suit your needs or taking up premium relief/holiday options where they are available.

Talk to us about how Life Insurance might be right for you.