Question Detail: Hello I am looking for first to die insurance in Australia (say $1.5m). There is no need for my partner and I to both have insurance as we do not have kids/dependants. We both work and only need a single payout if the other is not around. As such two lots of insurance does not make sense. if not available in Australia, can I source offshore? Thanks
Jason - Bondi, NSW
Top answer provided by:
Hi Jason, great question. I wish there was a straight-forward answer…
Without the ability to clarify the purpose of the cover, I’ve assumed the purpose of the proposed ‘first-to-die’ cover would be to provide a lump sum to clear debt in the event of either one of you passing.
I haven’t seen a policy like you’re asking for since I worked in lending for a major bank more than twenty-five years ago. They were referred to as “Mortgage Insurance” and were designed to provide an amount sufficient to pay out your mortgage in the event of either party to the mortgage died while the mortgage had an outstanding balance. Premiums were relatively expensive when compared to standard life cover, yet they were popular because there was no medical underwriting required. The cover had to be taken out prior to the loan being funded and the amount of cover was capped at the outstanding balance of the loan…not a cent more.
While it used to be possible to buy a multiple life, first-to-die policies, it hasn’t been possible to buy a new first-to-die style policy in Australia for around 15 years.
Insurers stopped offering first-to-die style policies after actuaries realised premiums had been mispriced and were around 5% cheaper than they should have been. Because insurance companies weren’t making money from these policies, they simply stopped offering them. It was more cost effective to write a separate life cover for each life insured rather than offering multi-life policies.
The ‘new’ ownership structure was individuals owning their own separate policy rather than being bundled into a single policy. The ‘new’ way of structuring policy ownership also reduced the risk of disputes over who ‘owned’ the multi-life policy in the event of a relationship breakdown.
In doing my research to answer your query I did discover there is still a type of ‘bundled cover’ available. It’s only available through accredited mortgage brokers and goes some way toward meeting your requirements; however, the policy needs to be implemented within three months of the mortgage being funded. This time-line requirement alone has capacity to preclude many people from being eligible this type of policy.
The policy mortgage brokers can offer includes some limited Trauma and Total & Permanent Disability (TPD) features as well as life cover. Because it’s a bundled cover that includes Trauma and TPD features, it’s going to have a ‘bundled premium’ which means it will be more expensive than stand-alone standard life policies. The industry expert I spoke to suggested you’d likely pay around 80% of the ‘bundled premium’ for the Trauma and TPD covers, with roughly 20% of the ‘bundled premium’ accounting for the life component of the policy.
While the cover appears to masquerade as a first-to-die cover, it’s not. It’s two separate policies, each owned by the life insured, but written under the same policy banner. Interestingly if no beneficiaries are nominated, the proceeds of the first life’s policy goes to the survivor and doesn’t automatically clear debt. The policy has maximum insured amounts, around half the amount you’ve nominated, and includes benefits you’re not asking for.
Given current pandemic conditions, Australian based insurers have advised it’s not possible to implement covers for people who aren’t residents of Australia. The re-insurance community have enforced restrictions which means it’s uncertain you will find an insurer willing to offer covers to non-residents regardless of the country they’re domiciled in.
My recommendation would be to engage a qualified insurance adviser to provide advice on the most suitable insurer for you and your partner. To find the most suitable covers, expect the adviser to require information relating to your occupations, ages, existing health conditions and gender.
I hope that’s been helpful…let me know.
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