Are You Paying the Loyalty Tax on Life Insurance?

Loyalty might seem like a virtue, but when it comes to life insurance, staying with the same insurer for too long could cost you more. Recent analysis reveals that long-term policyholders often pay significantly higher premiums than new customers—a phenomenon commonly known as the “loyalty tax.”

Our Morrows Risk Insurance advisors have observed the same trend, particularly in policies over five years old. According to research from Insurance Watch, many Australians could see substantial savings by moving to a new life insurance policy.

What the Numbers Say

Insurance Watch’s data highlights that customer concerns about the cost of life insurance are increasing. Premiums were the most frequently mentioned issue in 35% of customer reviews over the past year, ending June 30, 2024. Given the financial pressure many Australians are facing, this growing focus on price is understandable.

Key findings include:

• Policyholders with positive feedback on their premiums had held their policies for an average of just 2.7 years.
• Those dissatisfied had held their policies for over 8.1 years on average, suggesting that the longer you stay with your insurer, the less likely you are to feel your premiums are fair.

Why Are Long-Term Customers Paying More?

1. Stepped Premiums: Premiums for life insurance often increase with age, particularly in trauma, total and permanent disability (TPD), and income protection (IP) policies.
2. First-Year Discounts: Many insurers offer attractive discounts to new customers, but these discounts are short-lived. When they expire, premiums revert to higher standard rates.
3. Legacy Insurance Brands: Older insurance brands, such as CommInsure, BT, and Asteron, are often closed to new business. Without competitive pressure, their premiums remain higher than those of newer insurers.
4. Duration-Based Pricing: Many insurers structure their pricing based on how long you’ve held a policy, assuming that the risk of a claim increases over time. Discounts offered in the initial years of a policy gradually disappear, leaving loyal customers paying more.

The Solution: Time for a Policy Review

If your life insurance policy is more than five years old, there’s a good chance you’re paying more than you should. A comparison of average premiums over the last five years shows significant reductions in the rates available to new customers—particularly if you are 45 and older.

While switching to a new policy may seem easy, new applications often require health assessments. This can pose challenges for some, especially if health conditions have developed over time. However, the savings could be well worth the switch if you are healthy.

How Morrows Risk Insurance Can Help – What Can You Do?

We understand that life insurance is about protecting your financial future, not overpaying for peace of mind. Our experienced Morrows Risk Insurance advisors are here to help you review your current policy, compare new options, and help you decide if switching is in your best interest.

Reach out to your Morrows advisor to arrange an obligation-free quotation. Let’s ensure your loyalty is rewarded, not penalised.