Why insurer strength still matters when reviewing life cover

The Reserve Bank’s ongoing monitoring of insurers focuses on issues such as solvency, capital strength, profitability and the ability of firms to withstand stress. These are important background factors because life insurance is a long-term promise. Many policies are held for years, sometimes decades, and families rely on the insurer being able to meet valid claims well into the future.

However, sector-level resilience does not mean every household has the right mix of cover. A policy may still be too small for current debts, too expensive for the household budget, or missing related protection such as trauma, total and permanent disability or income protection. That is especially relevant for people whose circumstances have changed through a new mortgage, children, self-employment, separation, a pay rise or a reduction in income.

Affordability is also becoming a sharper issue. Rising living costs can make stepped life insurance premiums feel harder to absorb as policyholders get older. Cancelling cover outright may solve a short-term cashflow problem but can create a bigger risk if new cover later becomes more expensive or harder to obtain after a health change. Before cancelling, it may be worth asking whether the sum insured, optional benefits, premium structure or waiting periods can be adjusted.

Financial strength is another useful comparison point, but it should be read alongside product features. Customers can check an insurer’s financial strength rating, but they should also review exclusions, disclosure obligations, ownership structure, claims processes and how premiums may change over time. The cheapest policy is not necessarily poor value, and the most expensive is not automatically the best; the key is whether the contract matches the risk the household is trying to manage.

For anyone reviewing cover, the starting point should be a clear estimate of what dependants would need if income stopped permanently. That may include mortgage repayment, rent, childcare, education costs, funeral expenses, existing savings and any cover already in place. A licensed adviser can also help compare policy wording and explain trade-offs in plain language.

The broader message is reassuring but not complacent. A stable insurance sector helps underpin trust, while a careful policy review helps ensure that trust is attached to cover that still suits real household needs.