Insurance

By: Peter O’Callaghan

Research shows that many Australians are underinsured prompting insurance companies to advertise simple insurance solutions on television. Are these quick and easy plans suitable for your family?

A study* commissioned by the Investment and Financial Services Association (IFSA) found that only 4% of the population with dependent children is adequately insured. Surprisingly, Australia is one of the most underinsured countries in the world.

The cause may be attributed to peoples’ uncertainties surrounding medical examinations, probing application forms, costly plans and persistent sales people.

In recent times, there has been a significant increase in the number of companies advertising on television for the purchase of low cost insurance cover where:

  • cover will generally be accepted without an upfront medical examination,
  • policies are easily arranged on-line or via a single telephone call, and
  • premiums are competitive.

Though these companies usually make these offers under an Australian Financial Services License (AFSL), specific advice may or may not be provided, and often these companies ‘take an order’ for which they are well paid although no specific advice is provided.  In effect this means the risk of being underinsured, or having the wrong product is transferred to the consumer.

Before deciding to use telephone product provider each consumer should ask him or herself a number of questions:

  • How can I know how much insurance I really need?
  • How do I ensure my family won’t be financially worse off following an insurable event?
  • Would the family home need to be sold if the household income was reduced?
  • How do I ensure my children can afford the right education to start them off in life?
  • What if I became sick or injured and was unable to work for a significant period?
  • What happens if at the time of claim my policy is then underwritten and the insurer elects to deny the claim?

If these issues concern you it’s likely that you need a more tailored insurance plan and the peace of mind knowing that any insurance policy is fully underwritten with the risks accepted by the insurer.

Recently a financial planning colleague of mine related a personal experience involving a client of theirs. The client had cancelled the insurance application due to delays resulting from the underwriting process and purchased cover through a telephone provider. Less than 2 years later the client fell ill and was unable to work however upon lodging the claim, was advised that underwriting would be conducted at that time, and the claim was ultimately declined due to the results of underwriting. Though thinking they had cover in place provided peace of mind at the time, the reality was they were not covered until the underwriting process had been completed and the insurer accepted the client’s risk.

Discussing your circumstances with a suitably qualified and experienced financial adviser should enable you to have your goals and objectives identified, and cover recommended which takes into consideration those objectives and your current circumstances. Future reviews with your Adviser would ensure the cover continues to remain suitable as your circumstances change.

Most people do not doubt the importance of insuring significant assets like cars or houses, however they often neglect the most valuable asset you own…. YOU and your ability to earn an income. Can you leave such an important decision to chance? Given this, off-the-shelf insurance products fulfil their purpose as it can be said that encouraging people to take out some insurance is better than having no insurance.

But if an insurance plan specific to your family’s future security is important to you, it might take more than a phone call to arrange, while the peace of mind it brings will last a lot longer.

*The Lifewise/NATSEM Underinsurance Report-February 2010

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