27 Oct 3 reasons DIY insurance is too good to be true
We live in a product focused culture. How often do we jump online to do it all DIY, looking for the best reviews and the best deals? But there’s a reason the old adage ‘you get what you pay for’ exists.
Online/TV insurance companies (called direct insurers/insurance) prey on the DIY, easy, product-focused mindset to sell Australians policies that are low-quality, over-priced and offer little service, and it does my head in.
Look, I’m happy about one thing – life and disability insurance cover is getting more exposure and more Australians are realising that there is a need to protect their most important asset (themselves!), but these policies just don’t stack up and are not the best option if you want true peace of mind. Let’s examine why.
1. It’s cheaper to do it myself
Is it though? Apart from all the research and opportunity time wasted in doing it yourself, the actual pricing of these policies may surprise you. Check out the below research conducted by financial comparator Canstar for Income Protection for a 27 year old white-collar, non-smoker:
Why are the direct insurers more expensive? They said it would cost as much as a cup of coffee a day, and that sounds pretty cheap! Firstly it’s because it’s an easy product flog for them and a lot of people fall for it so ‘let’s add a bit of extra margin for our shareholders’*, and secondly because there is little loyalty, relationship or service so customers are more likely to cancel their policies through a direct insurer than an adviser policy. As a result direct insurers inflate their premiums to take into account a massive cancellation rate and still remain profitable.
I had a client last year who had a life insurance policy through Woolworths – yep, the supermarket – for $1,157,625 death cover. The premium was $251.06 per month. If you’ve never looked into life insurance before you might think “yeah OK, that seems fine, I’ll pay that”. To an adviser, I looked at it and flipped. Are you kidding? I wasn’t sure the client had read the figures correctly to me so asked for a copy of the insurance schedule. There it was, clear as day: $251.06 per month. I ended up getting him an advised policy that has absolute peace of mind (see below) for $140.46 per month. You read that right – a saving of $110.60 per month.
This is not an isolated incident. I’m happy you’re all looking into your options and getting some form of insurance but it really does pay to pick up the phone and call a licensed, specialist insurance adviser.
2. I’m covered and all it took was 10 minutes!
Sorry to bust your bubble, but no you’re not. What you have is a number, like those little ticket stubs you get at the deli section of the supermarket, to get in line at claim time and be scrutinised whilst you are laid up in hospital unable to take an active part in the process. You don’t actually have any guarantee that this policy will fulfil its intended purpose because direct policies are underwritten at claim time so you really have no guarantee, no peace of mind and potentially no cover. Scary!
The worst part of all this is for policy holders is the pervasive “pre-existing condition clause” on direct insurance. The pre-existing condition clause states that if you suffer from any condition or health event that was apparent before the policy was taken out or became apparent whilst the policy was being applied for – even if you are ignoring it and decided not to seek medical advice – this may be material to any future claims. So for example if you had high blood pressure or cholesterol and died of a heart attack the insurance company would not pay any benefit to your family! Not only are these exclusions in place but there is no way for you to know what you are not covered for until after you have made a claim. Interesting that so many Australians wilfully play Russian Roulette with their insurance.
Conversely, the policies you have or would take out through an adviser like us are fully underwritten, meaning you are medically, financially, occupationally and lifestyle underwritten up front. Whilst this can be an arduous process, as long as you have adhered to your duty of disclosure there are not likely to be any issues at claim time and you’ll have absolute certainty that your policy is covering you and will protect you at claim time.
Why on earth would you pay more for a policy that isn’t guaranteed to cover you!?
3. They’re so easy to deal with!
Direct insurer’s call centres across the world are staffed with people who are focused on key performance indicators, sales targets and getting you off the phone in a timely manner. They don’t necessarily have a back-to-front understanding of product, process or structure of policies and generally their job is to upsell.
I had a client recently who had been dealing with a direct insurer. She had called a direct insurer and asked for $500,000 life insurance. When she was sent my way I spent time during our discovery meeting asking questions she hadn’t been asked previously. I explained that as advisers we ask these questions so together we can understand what is actually important to her to address in the event of death or disability. After going through the discovery process with her she quickly realised $500,000 was nowhere near enough cover but the call centres aren’t trained to advise you or put your best interests first – they’re there to be chipper, put the fear of god in you and get you to buy in one call.
And what about claims? Don’t even get me started. The only thing I have to say here is there’s been a significant upswing in advertising for law firms like Slater & Gordon and Maurice Blackburn as a result of difficult insurance claims from direct insurers. Ask no more.
At the end of the day these direct insurance companies use slick advertising and make insurance easy and sexy, in a way, but they generally aren’t worth the piece of paper they’re written on. There’s also further considerations for your situation such as:
- Potential tax consequences or having the wrong policies or ownership structures.
- The value of regular reviews to make sure your protection is still appropriate as your life changes.
- Are you dealing with reputable companies and can you be sure they will still be there in 10 or 20 years when you need to make a claim?
- Are the terms and conditions of the policy competitive and is the premium really as low as the claim or are you actually paying more to cover bad risks because they do not underwrite properly?
- Are your benefits going to be paid to the right person or will they be available to creditors or lost in legal action?
Only a proper analysis of your full situation and an ongoing education and life-stages focused relationship with an adviser will ensure full peace of mind, policies that actually work as intended and the best outcome for where you are at any given point in your life.
Don’t get sucked in by the hype.
If you want to discuss your insurance options, review your policies, or discuss your current direct insurance cover with us and get some more information please call us on 02 9633 5530 or complete our contact form.
* I literally have no evidence of this, I’m just a cynic and a realist.
This information, and any advice provided is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore you should consider its appropriateness having regard to these factors before acting on it.