When I was driving to work this morning I passed a bus with an ad for a big grocery giants life insurance. It was quite easy to see their ‘low’ price of $4.50 per week but I wondered – is this cheap? What do you get for this price?
This is just one of a growing number of providers that will sell insurance directly to the public, seen as ads on TV or offered through your private health insurer. Hence it is known as ‘direct’ insurance.
I often get questions about direct insurance – here are some of the myths that I can dispel:
It is cheap insurance?
Many people would expect that direct insurance is cheaper than insurance you can obtain from a financial adviser; however it is usually more expensive. This is because the direct insurer does not know the medical history of who they are insuring (refer to next myth) and their risk is much higher.
So when a grocery chain says that they can provide a 33 year old non-smoking woman with $300,000 of life cover for $4.50 per week, this probably isn’t cheaper than what you pay in your super fund (also confirmed by Canstar).
You don’t have to complete medical questions
Hooray! So now you don’t have to worry about all that usual paper work and you can be covered even if you have a medical condition, right? WRONG! You are NOT covered by existing medical conditions and you will have mountains of paperwork at the time of claim (do you want this when you are sick or injured?). You are could find out too late that you have been wasting good money on premiums.
Some insurance is better than no insurance
I am the first to agree that Australians are generally underinsured so I do think there is a place for direct insurance in the market. But if you are going to be paying money for something, wouldn’t you like more certainty?
So here’s what a financial adviser can offer you:
- How much cover – we can calculate an answer to this popular question. The amount of insurance cover is different for everyone, and when you claim each dollar of cover will be allocated to a financial need of your family.
- How to hold the cover – it may be advantageous to hold the cover in your super fund or Self Managed Super Fund. Or it may be better for your situation for your partner to be the policy holder. A good adviser will also take into account the taxation issues and your cash flow.
- Affordability – the insurance might seem cheap now but as you get older, it is important that you can afford to keep paying the premiums when your likelihood of claim is much higher. An adviser can give you options for keeping your insurance affordable in the long term.
- Product differences – advisers have to know the policy definitions and benefits of a range of products, and can select one based on your specific needs.
And insurance advice may not be as costly as you think – along with the probability of cheaper premiums, advisers may choose to waive the fee for insurance advice if you take out a policy with them, as they are remunerated by insurance commissions.
So a little bit of paperwork and going through the advice process now may mean it is quick and easy to have insurance in the long term!