Finally independent research is here to explode the consumer myth that direct insurance purchased online or over the phone is cheaper than adviser-recommended insurance. That is not the case. In fact, direct insurance is significantly more expensive.
Read the Canstar article courtesy of The Sydney Morning Herald at http://www.smh.com.au/money/planning/online-insurance-doesnt-come-cheap-20140829-103y95.html
You probably wonder why this is because surely direct insurance cuts out the middleman (i.e. the adviser). The reason is that all of the focus on high convenience, few questions and no medicals means that the direct insurer has a large pool of people insured but little information about who is healthy and who is not. When the health risks of a large group of people are unknown, the insurer does a number of things to make sure that the amount paid out in claims stays well below the premium income. For example, they increase the price to reflect additional (unknown) risk, and they exclude any pre-existing conditions you have at the time of applying. So if you have health issues, you can end up paying a lot of money for a policy with low certainty of a claim payment. For example, if you have a pre-existing diabetes condition when you apply, you won’t be paid on a diabetes-related condition; and there are many serious conditions related to diabetes. Whilst the direct insurer may not ask too many questions when you apply, they will ask a lot of questions at claim time when you are dead, disabled or seriously ill. It’s when they go back through your Medicare records that they will find out about pre-existing conditions.
On the other hand, when you purchase adviser-recommended insurance, you provide full health and lifestyle disclosure to the insurer upfront at the time you apply. It is known as the underwriting process. It takes a little longer, but this way, the insurer knows precisely the risk you pose to them. You will then be offered terms at the best price possible having regard to the state of your health. And you have high certainty of a claim payment provided that you tell the truth. And in the interests of being fair in my diabetes example above, the underwriter still may vary or deny insurance when you apply, but at least you know immediately and you won’t be paying premiums for insurance cover that will never pay out.
Finally, very few people are asked to do a full medical, mostly because the insurer has to pay for it if they ask for it. When you apply for insurance, you authorise the insurer to request your medical history from your doctor. For many people that and a signed application form is sufficient health evidence. If any medical testing is required at all, it is often just a blood test paid for by the insurer and carried out by a qualified contract nurse in your home or at your work.
I should also add here that many people have had their lives saved through insurance medical testing. Insurer-requested blood tests and ECGs have identified many potentially serious or deadly conditions.
Request an adviser-recommended quote from me now – income protection, trauma insurance, life insurance, total & permanent disability insurance. You family might depend on it.
Also check out Canstar for independent consumer research on financial products, interest rates and electricity at http://www.canstar.com.au/
General advice warning
The article above is general advice only designed to educate and heighten awareness of insurance issues. It should not be regarded as personal advice because it does not take into account your personal circumstances, financial situation or specific goals. For personal advice that is tailored to your needs, please consult a licensed financial adviser.