You’ve finally decided, it’s time to get Life Insurance. It’s what adults are supposed to do. Like almost everything else, you start your search with Google. You have a Paypal account and last week you even bought a pair of shoes online. It stands to reason that you should be able to get life insurance directly online too. It’s convenient and cheap because you’re cutting out the middleman, right?
Here’s what you don’t know. Obtaining life insurance directly from the insurer, via phone or online, is not necessarily the cheapest option and may even cost you more in the long run. Recent research has revealed that premiums from direct policies are on average 35% to 50% more expensive than retail insurance (advised policies). Therefore, don’t assume you premiums will be cheaper just because you bought a policy directly.
Direct life insurance is life insurance you can buy direct, either from insurance companies or financial institutions, without the involvement of a financial adviser. The cover is easy to apply for and requires nil or minimal medical information, however, this could lead to uncertainty during the claim stage.
Deciding what type of life insurance to get is all about understanding what type of protection you require and the amount of cover you’ll need in order to pay off outstanding debts, and support your loved ones when you are no longer around. It’s not a decision to be made hastily. You must ensure your benefits are efficient. With this in mind, we have compiled the top 10 things you need to know when considering Direct Life Insurance Policies.
The Price: What will it cost me?
We all have a budget to follow; we need to cover household expenses, student loans, and that new iPad you just had to have. That’s why we rely on value for money. We want our personal insurance policies to provide us with the best possible cover and security. We realise how important this is, which is why we have created the industry’s first Quote Index which you can access below.
You can go online and use this Quote Index to compare premiums from both Direct and Advised policies. No personal details are required.
Most people believe that buying insurance directly from a life insurance company is less expensive than going to a qualified financial adviser. But, as you will notice from the 24 policies we compare (13 Direct policies and 11 Retail), the advised (retail) policies are noticeably cheaper than the direct ones.
“How is that possible”, you ask. Well, the difference is that financial advisers, a.k.a. brokers, are difficult to please, therefore life insurance companies are in constant competition with one another to try and win the adviser’s business. In so doing, increasing their chances of gaining a larger share of the adviser market. This will generally lead to you, the client of an adviser, receiving better offers with added benefits and lower prices.
Secondly, the business model of direct insurers forces them to “load” operating costs into their premiums to cover call-centre agents and big marketing budgets that attract and retain clients. In addition to this, direct sales agents usually follow a script and sell generic policies to all clients.
Plenty of direct insurers have extensive exclusions built into their direct policies. An exclusion is a policy provision that eliminates coverage to specific conditions, circumstances or situations. For example, some policies will exclude pre-existing medical conditions for the first 5 years. Should you then die within these 5 years, as a result of said pre-existing medical condition, your loved ones will NOT receive the monetary benefit you were covered for.
Another example might be War and Terror exclusions or hazardous past time exclusions. These exclusions limit the financial losses for the life insurance company.
Tips on finding exclusions in the product disclosure statement (PDS) of a policy:
- Look carefully at exclusions in the policy before you sign up and specifically at any definitions of pre-existing medical conditions.
- Pay attention to the heading. When is a benefit not payable? When won’t you be covered?
- Be careful of policies requiring applicants, having had a pre-existing medical condition, to “prove that they’ve been free of this condition for 5 years, to the satisfaction of the company”.
- Look for exclusions using words like “Dangerous occupation” and “Dangerous pastimes”. Be sure their meanings are crystal clear. Not all companies will see your occupation as being dangerous, but some will.
- Be aware that any and all criminal activities may be excluded by most companies.
- Make sure you’re aware of all your genetic conditions and fully disclose them during your application process.
You must ensure your policy has as few exclusions as possible. The more exclusions there are, the harder it will be to claim. Ideally, when you are buying a life insurance policy, the only exclusion you should expect to see is the standard 13 months suicide exclusion.
Your Claim might not be paid out – Non-comprehensive Underwriting
Direct products aren’t typically as strict when it comes to the underwriting (application) process, which means there’s a risk that underwriting takes place when you submit a claim.
Underwriting, also called risk assessment, seeks to minimise anti-selection. Anti-selection occurs when a policyholder is a higher risk, due to their way of life, than the company perceived. Underwriters identify greater risks and apply more stringent conditions to the policy before the application is approved. Thereby protecting the company and reassuring the client that their current medical and personal situation has been reviewed making claims process easier Win-Win.
The lower underwriting criteria, that direct products use, attract high volumes of anti-selection risks. This results in higher premiums to cover the risks. Due to typically lesser questions there is also a greater risk that the insurer may find a reason not to pay your claim, based on something that could have been identified when you disclosed all your personal and medical information to the provider.. Retail policies ask far more probing questions to the applicant, and the insurer may also request blood tests and / or reports from your Doctor to assist them in underwriting your policy. Generally the more detailed, accurate and your personal information is at application time the more likely you are to comply with your duty of disclosure and therefore less likely to have any surprises at claim time!
Life Insurance Benefits
The benefits are after all your main reason for paying a monthly premium. You need to ensure that you are covered for the events you and your family need cover for.
Here are a few benefits you may want to look for in a Life only policy:
- Death cover
- Terminal illness cover
- Funeral advancement
- Child cover: Some policies provide up to $10,000 free child cover for children between the ages of two and sixteen.
- Future insurability: Allowing you to easily increase your cover due to a life event, i.e. marriage, children or buying a house.
Direct policy benefits are generally not as comprehensive. This is mainly because product features must be easy for sales agents to explain over the phone. They restrict maximum cover amounts and benefits, thus limiting the protection you would enjoy.
Take great care when performing an online life insurance comparison, especially in terms of their benefits and exclusions. If you don’t feel confident to do so, consult a specialist.
Imagine, instead of excitement at your approaching 65th birthday, you are filled with anxiety. Your policy is about to expire, but your home is not paid off yet and your wife just bought a new car. Who’s going to take care of her and pay the bills when you’re gone? And what about those funeral expenses?
While there are a fortunate few of us who no longer require insurance cover after the age of 60, 65 or 70, we aren’t all that lucky. You might only want your policy to expire at the oldest age possible. None of us know what our lives will look like in 10 or 20 years’ time. However, we do know that we want security and for our families to be taken care of.
Generally, many polices offered through financial advisers only expire at age 99 or 100. In some cases there is no expiry age at all. Therefore you can stay financially protected well into your senior years.
Stepped premiums only
Stepped premiums are premiums that increase as you age. They’re calculated annually on your age, resulting in premiums getting higher as you get older. The insurance company is essentially protecting themselves as your risk of death and disease increase.
While these type of premiums are cheaper at the start of your policy your premium will rise substantially as you get older. On the other hand, with level premiums you pay more at the start, but your premium remains more consistent because it does not increase due to you getting older. Level premiums are generally based on your age at the time of your application and might only covert to stepped premiums at the age of 65 or 70.
Direct Total and Permanent disability (TPD) insurance only covers “any occupation”
Any occupation means you meet the definition of permanent disability and are unable to work in any occupation.
Own occupation pays a benefit if you meet the definition of permanent disability and are unable to perform the job you are specifically employed to do, even if you are still able to work in another occupation. For example, a surgeon who develops a tremor may be considered totally disabled if he or she is unable to perform surgery, yet still able to practice diagnostic medicine.
Simply put, most direct total and permanent disablement cover polies will generally not pay out your claim if you cannot perform your job, but are still able to work in another occupation. Always best to check the specific product PDS beforehand to be sure.
You’re stuck with the Premium Rates offered by the one provider
Once your application has been approved, you will be given the premium rate. It’s their set rate. No negotiations, no options.
When working with a broker you are generally privy to a number of premium rates for the companies they work with. Generally they will talk with you about all your premium and policy options and assist you in finding a policy that meets your requirements. You’ll get access to their expertise and research before even making a formal application.
The policyholder must be the life insured
A self-owned policy means that you alone will have complete control over your policy. It also means your policy may not be able to be paid for by your super fund. Having your super fund pay your premiums can often assist with your personal cash flow and potentially make your cover more affordable.
Less Value added
Yes, consulting with a professional adviser could take up to an hour of your time, but they perform important tasks and add significant value. They take you through the products, help you fill out the application form and assist you throughout the whole underwriting process.
A specialist understands the insurance terminology and what is covered and what is not covered in all the different policies. They are able to guide you and assist in answering all your questions help you find the policy that best meets your needs.
Without a broker you need to compensate and look carefully at exclusions, prices and benefits before you sign up. The assistance of a call centre consultant is not the same as speaking to a qualified financial adviser with years of experience and who keeps up to date on products and industry developments. This means an adviser can be an invaluable resource to you and your family during every stage of your life.
To ensure you are adequately protected and your loved ones will be well taken care of, it’s important to carefully consider your life insurance choices
Direct Life Insurance vs Retail Life Insurance
Take great care when doing online life insurance comparisons. Look carefully at the price, exclusions and the benefits. Consider how much life insurance you’ll need in order to cover all outstanding debt and take care of your loved ones.
Can you say with 100% certainty that, if you should die, your life insurance policy will pay-out?
If you are unsure or uncomfortable making a life insurance inquiry and comparing products, let us help you.