A personal friend of ours recently witnessed the sudden and unexpected death at work of a friend and colleague. A shocking experience at the time, of course, and on reflection, one that brings home very clearly the importance of having insurance. Like the Castrol ad that reminded us that ‘oils ain’t oils’, insurance ain’t insurance either. One size definitely doesn’t fit all, despite what the direct insurance TV ads might tell you.
Most people know that it’s a good idea to have personal insurance. In fact, personal insurances represent a complex area where appropriate solutions will reflect your personal circumstances in the context of your overall financial plan. Most people also lead busy and challenging lives so it’s easy to understand why buying direct insurance – without taking advice – is so tempting. It’s generally a quick and convenient way to tick the ‘get insurance’ box. The problem is that direct insurance is rarely, if ever, adequate.
We always advocate that you seek professional financial advice in order to help you avoid the following, and all too common, insurance pitfalls.
1. Insurance definitions
It may surprise you to learn that two people with trauma insurance including melanoma may actually have different cover if they are insured with different companies. This is because not all insurance companies use the same definitions to describe their cover. ‘Cancer’, ‘skin cancer’ and ‘melanoma’ are defined in various ways depending on which insurer you ask. For example, some companies exclude skin cancer from their cancer policies while others may require a higher premium for covering it. The details will be found in Product Disclosure Statements (PDS) which are not the most user-friendly of documents for the uninitiated.
At Collins Mann we are well-versed in the nuances and implications of the policy definitions used by a range of insurers and which definitions are appropriate to your individual circumstances. We also know, by reputation, which insurers have a culture of timely payment of their clients’ rightful entitlements, and those who seek to delay or avoid paying claims.
When applying for insurance cover for the first time, you need to be completely honest about your personal history. This is called disclosure. If you don’t disclose certain injuries or illnesses (or activities you’d generally rather not want to discuss), your claim may be denied, leaving you with a worthless policy. If you’re a social smoker, for example, you’re still a smoker. This may seem obvious, but we’ve seen cases where non-disclosure was accidental and based on a lack of understanding of the scope of a question. In our opinion, DIY insurance simply isn’t worth the risk of receiving no pay out after years of paying your premiums.
3. Insurance Structuring
Your insurance policy(ies) can be structured in a range of ways, and some may suit your situation better than others. For example, there may be cost and tax efficiencies depending on how your trauma, income, TPD and/or life insurances are ‘packaged’ in relation to each other. You may also wish to pay your premiums from your super so that your day to day cash flow is unaffected. You should also carefully consider whether you are satisfied with level and type of default insurance offered if you have an industry super funds. See the next point for more details.
4. Insurance in super
It’s true that there are tax effective options for purchasing personal insurances through your super. But tread with caution. An important concern associated with most insurances held within super is that the insurance is not tailored to your specific circumstances and stage in life. Another potential problem is that if you change jobs and your employer super contributions stop, or move to a different super fund, your personal insurance cover may end without notice or you could be subject to waiting periods. Rising premiums that are paid from your super fund can also affect the amount of money available within the super fund for investment. This can have a significant impact on your retirement savings. Complications may also arise in the event of your death in relation to your super beneficiary and your Will.
5. Which insurance provider?
Any financial adviser worth their salt will recommend an insurance provider who is most likely to provide for you in the event of accident, illness or death. To this end, Collins Mann uses strict criteria to evaluate the quality of insurance providers. Our aim is for our clients to be covered adequately and affordably, with reputable, tenured companies known for their ethical and supportive approach and practices. We also select companies that have earned a reputation for processing claims and rewarding entitlements with minimal delay. Not least, we want to protect our clients from industry rogues.
These are five obvious reasons (and there are more) why our advice is for you to avoid buying direct insurance. It’s dangerous to assume that just because you’re paying regular premiums you’re properly covered against losing your income, trauma, disability or death. And if you’re not, the crunch will come at claim time. You may have seen sobering cases in the media recently where claimants found their insurance was not adequate and ended up with very little or no pay out. Seeking qualified advice appropriate to your specific circumstances will greatly reduce the prospects of this happening to you.
For example, consider the depth and breadth of information you’re likely to receive from a call centre employee who’s paid on commission or other incentives. Contrast that with the insights of an experienced professional who has a thorough understanding of your personal circumstances and who will consider the benefits and definitions of a range of products prior to recommending a particular type of policy with a particular insurer.
Really, insurance ain’t insurance.
To find out more about any of these topics, or to arrange a review of your personal insurances, please contact Collins Mann on 07 3251 3201.