Income Protection Premiums for Women
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The days of inequality between men and women are fast disappearing. Most women have achieved an equal footing in all aspects of life including employment opportunity, income and education. Even in domestic roles the imbalance is gradually changing. However, there will always be some areas where conclusive research deems it impossible to offer equality. One such area is personal cover and in particular, income protection insurance.
It is common practice amongst Australian insurers to charge women higher income protection insurance premiums than males, even when risk factors such as age and occupation are the same. Is that fair? Are women being discriminated against? The following will help explain the truth behind the "price war".
Why do women pay higher premiums?
Fundamentally, the occurrence of higher premium rates of insurance for women is not driven by a biased attitude toward women, but rather represents a historical pattern of women being more likely than men to claim, and once on claim, being more likely to remain off work for a longer period of time.
An examination of claims data over an extended period provides evidence of the need to charge higher rates for female policies due to a higher risk. Specifically, there are two key areas of claims experience which provide the best explanation.
1. How many insured people will go on to claim?
This is measured by looking at the 'claims incidence rate'. This refers to the expected proportion of lives insured, which are not currently disabled, that will commence a claim at a given age. A high claims incidence rate results in a higher number of claims expected and consequently a higher claims cost. A higher premium is therefore required to cover the risk.
2. How many people on claim will cease their claim?
This is measured by looking at the 'claims termination rate'. This is the expected proportion of claimants, who are currently disabled, that will recover and cease claiming benefits at a given age and claim duration. A low termination rate results in fewer claimants recovering and longer average claim periods, therefore requiring higher premium payments to cover the increased expense to insurers.
Research on women & income protection insurance
The most recent Australian study into disability income claims drivers is the Report of the Disability Committee conducted by The Institute of Actuaries of Australia in 1997. This study analysed the combined incidence rates and average claims duration of 17 life insurance companies during 1992 and 1995. The report confirms a significantly worse experience for women. The overall incidence rates for women were 138% of male incidence rates.
When analysed over different occupation and waiting period categories, female incidence rates were almost always worse than the corresponding male category.
The study also found longer average claim durations for women. In aggregate the average claim duration for women was 131 days compared to 110 days for men. The data analysed reviewed the cause of claims and occupation, and the results demonstrated an experience for females which was almost always worse than males.
An interim report by the same Committee was produced in 2000. This study reviewed the period of 1995 to 1998 and reported similar relative female incidence rates as the 1997 report. In addition to this research, Australian insurance companies also refer to their:
- own claims experience;
- application assessment and claims management processes; and
- policy conditions and definitions; before determining appropriate disability premium rates.
We can confidently conclude that the higher premium rates calculated for female policies are based on actual facts regarding the higher costs involved in insuring females. One thing that remains unchanged despite price differences is the need to protect against loss of income from sickness or injury.
Which income protection insurance is better for women?
It's not really a matter of which is better, but what suits your unique situation and needs. Regardless of cost, income protection is one of the most efficient ways to protect your income than through a tax-effective income protection plan.
Income protection insurance can be helpful for women from all walks of life. Whether you are single, married, or have children, it can help pay for living expenses should you become ill or injured.
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Insurance for women is becoming more important, especially now as women are often key income earners in the family & need their income protected