Does Life Insurance Provide Peace of Mind or is Ignorance Bliss?

Russell Cain Updated: 18 February 2020

When buying life insurance you’re often content knowing that, if you should pass away unexpectedly, your insurance company will step in and financially support your loved ones. Unfortunately, this isn’t always the case.

This article explores ways you can increase your control and certainty of your policy paying out.

Earlier this year , on the 16th of March 2016, it was alleged that CommInsure, the insurance arm of The Commonwealth Bank (CBA), used unscrupulous tactics to delay and avoid benefit payments in the hope that policy holders would be discouraged to continue their pursuit. “Allegations relating to CommInsure include missing medical records, file tampering, doctors being leaned on by claims managers to change their opinions, cherry picking of doctors to get the desired outcomes, policies that include in the fine print out-of-date medical definitions and excessive and unfair claims delays”, wrote Adele Ferguson, business columnist.

The very people you relied upon to protect your family, should worst come to worst, might be actively trying to avoid this responsibility. But, should such an enormous responsibility lay squarely on your insurer’s shoulders? Surely, the person taking out the policy has some control.

“During a hearing of the parliamentary joint committee on corporations and financial services on Wednesday, ASIC deputy Peter Kell said it was ‘his understanding” that none of the alleged victims in the scandal had received advice from a financial broker’, wrote Linda Santacruz, reporter for the Independent Financial Adviser (ifa).

Indeed, most the policyholders were provided cover from their superfunds and had not taken appropriate steps to buy their insurance from a specialist. As customers, you need to do more to investigate insurance policies before you make a purchase and switch providers and/or policies when it becomes necessary for you to do so.

Don’t assume your insurance in super is adequate or has appropriate medical and claims definitions. Many policies have a number of short comings that only a specialist would be able to identify for you. Do you know what’s happening in your superannuation fund?

Group Insurance vs Retail Life Insurance

Don’t take for granted that your family’s future will be adequately protected by “group insurance” policies provided through your superfund.

Group Insurance

Group insurance is attainable through your superfund or employer. It’s generally not fully underwritten, meaning your complete medical history is not taken into account, which can lead to complications at claim stage.

These policies are generally not guaranteed renewableYou are not in control of the levels of coverThe definitions, terms and conditions in the coverage, can change without your agreementYour cover can be downgraded at any time

The alternative to group cover through your superannuation fund is to purchase an external individual policy through a financial broker/comparison website. These policies can be funded through your existing superfund, depending on the type of cover you require.

Retail Insurance

Retail insurance is generally fully medically and financially underwritten and provides greater flexibility, customisation and additional policy options than with Group policies.

Therefore, to ensure your family’s financial future is taken care of you need to talk to a specialist, like Life Insurance Direct.

Top 10 Reasons to Use a Life insurance Specialist

With the breaking news of CommInsure’s indiscretions, I think we can all agree that an insurance specialist should no longer be viewed as an unnecessary third party. Here are our top 10 reasons why we recommend getting an insurance broker:

1. Less expensive

Recent research has revealed that premiums from direct policies are on average 35% to 50% more expensive than retail insurance (advised policies).

2. Obtain the Best Deal

Brokers can often find you the best deals because they have a thorough understanding of the insurance market and can negotiate premiums on your behalf.

3. Easy and convenient

They’re able to guide and assist you in answering all your questions to help you find the policy that meets your requirements.

4. Broad Knowledge of the product

They have far greater knowledge of the product, feature benefits and exclusions because they review these policies and contracts on a daily basis, as opposed to consumers looking at these policies for the first time or very infrequently.

5. Great at Educating their Customers

Explaining the types of cover available, and the optimal you may want to consider structuring your policy.

6. Provide Technical Advice

Brokers can give you technical advice on your personal requirements, as well as the requirements of any business(s) that may require revenue, including capital protection solutions should a shareholder / key person pass away or become disabled.

7. Cost Effective

You can choose the amount of cover to suit your requirements and budget.

8. Industry Insights

Insurance Brokers are at the forefront of this rapidly changing sector, and will look for policies that will incorporate the latest product and benefit innovations.

9. They act as an Advocate for their Customers

Including during claim stage. Reducing stress and providing comprehensive feedback on the progression of your claim.

10. They Tailor to Suit your Requirements

They can prepare a customised insurance and risk management program for you, where they design the policy, negotiate the terms with insurance companies and place the cover with the insurer.

Review Your Policy Coverage

Life insurance is an important part of your overall financial plan. It is generally advised that you have a knowledgeable third party review your insurance documentation to ensure it still meets your personal requirements and financial objectives.

Events such as marriage, becoming a parent, buying a home, a significant increase or decrease in income can all influence how much financial protection you and your family requires or how you want your estate divided after your death.

Questions your broker will need to consider while reviewing your policy:

Are the people you want to receive benefits from your life insurance policy, actually the people named as your beneficiaries? Has your income or your health changed? Has your family status changed? Have you made changes in your mortgage payments or find yourself in arears? Do your premiums or benefits vary from year to year? If policies are set to increase, does the added cost still fit into your household budget? How much do the benefits add up to in your policy?

If you want to be sure that the amount of coverage is enough to meet your current financial obligations and your loved ones’ continuing financial requirements, you might want to consider soliciting an insurance broker to help you.

Avoid Your Claim Being Denied

It’s often perceived that getting claims honoured by insurers is an uphill battle. However, most companies are happy to pay out legitimate claims and will even go the extra mile to do so.

Ensuring that you or your beneficiaries are paid on disability or life cover requires a bit of work from your side. For cover to remain valid, policyholders need to comply with all the requirements in the policy. Failing to do so could lead to your claim being declined. There are a number of steps you need to take in order to avoid your claim being rejected

Use a specialist life insurance broker

They are exceptionally well equipped to help you in understanding your options, consider the different types of policies, coverage, terms and conditions, to ensure you’re taking out a policy that meets your requirements.

Take out a fully medically and financially underwritten retail policy. They provide in general far greater coverage and terms and conditions than direct or group policies.

Fully comply with your Duty of Disclosure obligations

Your duty of disclosure refers to the information you must tell a life insurance company when applying for cover. Your duty to disclose is legally enforced and there can be dire consequences when not complying with these requirements.

You have to be honest and fully answer all questions accurately. Generally, the more information you provide, at application stage, the less chance there is of your claim being denied.

Understand exactly what you are and aren’t covered for

It’s important that you familiarise yourself with the circumstances under which your policy will not pay. Look carefully at any exclusions in the policy and discuss these with a specialist before you sign up. Be specifically aware of any definitions of pre-existing medical conditions.

An exclusion is a policy provision that eliminates coverage to specific conditions, circumstances or situations. For example, some “Direct 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.

Other typical exclusions relate to alcohol consumption, drug usage, suicide and violation of the laws of the land.

Read the Product Disclosure Statements (PDS)

Be sure to read all the fine print(PDS) and clauses within your policy documents. One of the reasons a policy document even exists is to release the company from any legal and financial liability that could arise out of signing a contract with you.

It’s important that you carefully and diligently dissect your policy document before you sign. You insurance broker will be very valuable in this regard.

Make sure your policy is fully paid and up to date

Insurers will only settle claims on active insurance policies. Usually, if you miss a certain number of payments on you policy, your policy will lapse and you’ll no longer be able to claim. Once your policy lapses, you are no longer covered and all your premiums paid thus far will be rendered useless.

Use our Specialists Claims Support Service

At Life Insurance Direct we’ve handled hundreds of claims. We’re well seasoned in how the claims process should proceed, what your rights and those of the insurers are. We often understand the policy wordings better than the staff at the insurance companies. This step is key to ensure your claim is handled appropriately and professionally.

Conclusion

Your family depends on you every day, it’s important that you talk to a specialist when your family’s financial future is on the line. Review your life insurance in super and get assistance from a specialist life insurance consultant at Life Insurance Direct to help ensure all your requirements have been met.