Whatever financial transaction you perform or contract that you get into, you must always ensure that it has legal backing; otherwise you might have no legal recourse in case things go wrong. When it comes to life insurance, you can confidently sign that contract with an insurance company, with the assurance that such a transaction is regulated by the Life Insurance Act, Australia.
The Life Insurance Act 1995 provides comprehensive regulation for all financial services regarding life insurance.
Overview of the Life Insurance Act 1995
Although, this Act covers a multitude of aspects, which might seem quite complicated, it generally serves three key purposes:
(i) It ensures that insurance companies honor the contracts signed with policy holders to provide benefit payments whenever a claim arises. This should give you the much-needed assurance if you have any worries about insurers not paying. In the event that non-payment occurs, you would have sound legal backing to contest such incidences.
(ii) Ensuring that all contracts are handled appropriately while carrying out life insurance business.
(iii) Regulating the sale of life insurance policies.
Objectives of the Act
In order to fulfill its key purpose, this Act regulates specific facets of life insurance business, affecting both policy holders and insurers.
Some of its objectives include:
(a) Offering protection for policy holders and would-be policy holders. Any reasonable person would understand that businesses would only attract customers if they offer products or services that are valuable to such clients. This is the same case in insurance business; hence regulation is necessary to ensure that clients (policy holders) actually get real value from the contracts they make with insurers. Such regulation ensures viability, competiveness and innovation within the industry.
(b) Providing restrictions that limit life insurance business to suitable companies, which meet specific requirements. This is a critical aspect, since an insurer must be capable of paying any claims arising from the policies offered to clients.
(c) Imposing requirements aimed at promoting prudent management of insurance companies. Obviously, such prudent management is crucial in ensuring long-term sustainability of such a business.
(d) Giving provisions regarding supervision of insurers by the Australian Prudential Regulation Authority (APRA) (a prudential regulator of Australian financial services) and the Australian Securities and Investments Commission (ASIC) (an independent government body acting as Australia's corporate regulator).
(e) In cases whereby the continuance of a life insurance company is threatened by an unsatisfactory financial position or unsatisfactory management, this Act offers provisions for judicial management. Such judicial management provides the much-needed opportunity for a company to overcome the management or financial problems, without being placed in liquidation. This is instrumental in protecting policy holders and ensuring stability within the Australian financial system.
(f) Even if a life company closes down, policy holders would still have their interests protected, due to the provisions in this Act.
(g) In various instances, transfers and amalgamations occur within the life insurance industry. In such instances, the Life Insurance Act 1995 offers provisions for supervision of such transfers and amalgamations by the court. Such oversight is critical in protecting the interests of policy holders, despite any changes in an insurance company.
Kerrie Peacock regularly analyses major issues within the personal insurance industry. Her insights will help you make competent decisions regarding coverage. You can get professional advice from MeCovered. You can visit www.mecovered.com.au/life-insurance-act-australia to help you select the best coverage.