Cost-of-living sees life insurance become collateral damage

Sentiment towards life insurance has shifted from asset to liability amid a “perfect storm” of inflationary pressures, rising interest rates, cost-of-living expenses and demographic changes, says a life insurance service specialist.

The chief executive of iExtend, David Sarkis, said Australians have turned to financial advisers to assess the value of their life insurance cover amid persistent premium hikes, with some forced to decide whether to cancel, reduce or continue their policy.

This comes as a report from the Council of Australian Life Insurers (CALI), The State of Australia’s Safety Net, found that 23 per cent of the more than 5,000 Australian adults surveyed said they would consider cancelling their life insurance policy if their affordability conditions changed, and 68 per cent said they were concerned that cost of living pressures would affect their ability to afford or continue to afford life insurance.

“As a result of a range of financial and demographic pressures, we have seen more Australians change their view of their life insurance and are seeking to cancel it,” Sarkis said.

“The impact the cost of living is having on life insurance cannot be underestimated, with many Australian households feeling the pressure of daily life, leading them to consider cancelling their policies to alleviate the immediate burden of meeting premium payments.”

Research conducted by iExtend indicated there were seven key reasons behind Australians cancelling their life insurance cover, including:

• Rising premiums – Life premiums are expected to increase by 1.5% in 2025 in advanced markets while in emerging markets like China, India, and Latin America premiums could increase by 5.7%. This outlook erodes confidence in the value of sustaining life insurance for the long-term.
• Increased prevalence of chronic health conditions – Two in five Australian workers (39%) are living with a chronic condition. A change in health circumstances and the decision to cancel a life insurance policy, are two requirements of iExtend’s qualification criteria.
• Ageing population – By 2066, people aged 65 and over will make up between 21% and 23% of the total Australian population. As Australians get older, issues such as insurance and estate planning become more top of mind for more Australians.
• Cost-of-living – The monthly Consumer Price Index (CPI) indicator rose 2.3 per cent in the 12 months to November 2024, up from a 2.1 per cent rise to October. Sustained financial pressure has many Australians looking for ways to cut discretionary costs.
• Intergenerational wealth transfer – The Productivity Commission estimates the transfer of intergenerational wealth to be $3.5 trillion in assets by 2050. Wealth redistribution and estate planning will become a major driver of estate planning and in decisions around life insurance.
• Property and business sales – The cost-of-living crisis is one of the key challenges facing the Australian property market in 2025, driving more Australians to sell their property and business, regardless of timing. In this situation, life insurance policies become a long-term asset that can retain some of its value through a co-ownership arrangement.
• Accessibility to advice challenge –With approximately 15,400 advisers in the Australian advice industry, accessing professional financial advice to help Australians evaluate all their financial options before they cancel their life insurance and retain no value is an ongoing challenge.

“iExtend is working with advisers and their clients to ensure they make informed choices about the future of their life insurance policies, decisions which impact families and generations of Australians,” Sarkis said.