Financial advisers familiar with risk insurance know the following, and often have to explain it for new and existing clients:
· provides the capital at death for things like mortgage redemption, capital funds for education, lifestyle requirements for your family and income for the survivor.
· provides capital in the event of specific illness, accidents or events. This part of your protection planning pays out to the living.
· provides a regular income as a percentage of your earnings for a specific time. This product pays out to the living
An employer super fund may or may not provide these things, and even if they do superannuation funds may not necessarily provide the real sums insured needed for your specific circumstances. At the same time, the government’s support through pensions is being critically looked at.
If there isn’t going to be enough money to do those things that need to be done, then people definitely need to have their own insurance protection package or an ancillary plan that covers more than the employer fund may be offering.
Like all essential purchases there are some hard decisions to make that need to be considered.
However, you may have friends, family, current clients and even new clients who are considering taking the DIY approach to life insurance.
If that is the case show them this article, which is directed to consumers, and lists seven key mistakes they are likely to make in taking that course of action, and then work with them to avoid making those mistakes.
Mistake 1: Buying insurance online without good professional advice
Generally, when you buy insurance over the phone from an online or tele-provider, the assessment process is seen to be simpler! In fact, the insurer really is appealing to your request for brevity and simplicity. Be wary. This type of cover can mean assessment is carried out at the time of claim.
By going through the process of applying for cover with an adviser you are assessed at application time. It takes a little longer. This means you and your family have some certainty when you are accepted at application time, rather than be declined payment because of non-disclosure, exclusions or unfair clauses in inferior products at some time in the future when you are expecting a pay-out.
Advisers give qualified advice backed up with a defining document called a Statement of Advice demanded by law. So taking 15 minutes to buy a cheap online product can be very expensive if the provider doesn’t pay at claims time.
Mistake 2: Thinking your covers are best handled in your superannuation fund
Yes, your industry superannuation fund may have a component of insurance included. Generally, it is a minimal amount of protection to a certain age with sometimes blurred definitions for payment. Claims payments generally need to be approved by the trustees of the fund. This can often take months.
Whereas good advisers will confirm that not only are they involved in the sales process at application time but are also very attentive to your situation in the claims process.
Some questions you might like to ask your industry super fund adviser or the trustees of the fund are:
· What support or advice do they give in settling claims?
· What are the qualifications of the trustees of the fund to settle claims?
· Does the fund settle claims or is that function outsourced?
· How quickly do they settle claims?
· Does it cost anything to get claims paid?
· What professional standards do their people have in ascertaining how much cover you should have at application time?
· Does your cover reduce after a certain age?
· At claims time do I have to get my solicitor/accountant involved in the claims process?
· Do they give any guidance on the nomination of beneficiary aspects of the cover?
· Will my beneficiaries have to go direct to the insurer to gain access to my benefits?
By all means accept the generosity of your employer nominated fund, but consider covering the gaps with your own personal portable protection package.
Mistake 3: Only considering price rather than value of the product(s) purchased.
Price can play an important part in your decision to buy a protection package, but it is not the only thing to consider. Find out about things like:
· The capacity of the insurer to pay
· What type of benefits are included and excluded
· How tight are the definitions of the policies
· Disclosure of the obligations of the seller
· Dispute handling processes
· Claims payment capabilities and procedures
· What exclusions or limits exist on the cover
· Educational resources by the insurer if laws or obligations change
· Regular reviews by a competent adviser
· The correct nomination of beneficiary advice
· Ownership options
· Pay out process for stress, disability or partial disability
Price should be a balance for quality, service and communication. Without professional advice you may be receiving inferior service that eventually costs you a lot more than what you think you have saved.
Mistake 4: Buying insurance with premiums that increase as you get older.
As you get older the risk factor for insurers gets higher. So buyers face higher premiums to cover that cost for the insurer. This causes many people to let their protection packages lapse.
Did you know you can buy life insurance with level premiums? This means the premium can be averaged over the lifetime of the policy. So if you are young and looking to keep your policy for some time, have a look at this level premium option. Ask your adviser about the benefits and advantages of such a facility.
Mistake 5: Skimping on the amount of coverage you and your family really need.
Often people are not aware of the amount of cover they require. This is often predicated because they want to save money on premiums so they reduce the amount of cover they really need. One way to ascertain what you may need is to ask a series of questions such as:
If you were to die prematurely which option would you prefer for your partner?
1. They could own the house you live in and never have to work again
2. They could keep the house you live in and not have to work for 10 years
3. They could keep the house you live but have to go back to work in say 6 months
4. They lost the house and had to go back to work immediately
5. They can fend for themself
Covers offered in industry super funds rarely canvass these critically important questions for their members.
Mistake 6: Not considering the methods of distributing the proceeds of the policy after your demise.
Depending on your circumstances you need to be aware of the range of ownership options that affect the speed of distribution of funds from life insurance and protection packages.
Ask your adviser about the following methods of ownership, the benefits and shortfalls and how the funds are distributed at claims time.
· Owned solely by you on your life and mentioned in a will
· Owned solely by you on your life and not mentioned in a will
· Owned solely by you on your life and left in trust
· Owned by your spouse/partner on your life
· Owned jointly by you and your spouse/partner on your life
· Nomination of beneficiary options under life cover in superannuation funds
· Insurance under Buy/Sell corporate situations
· Total, permanent and partial disability claims procedures
· Pay outs for stress related conditions
This is where a competent adviser can show you the options best suited to your situation that can get the right amount of money into the right hands in the quickest time.
Mistake 7: Failing to review your situation and your covers as life events take place.
Event changes can be monumental or miniscule. They can range from the birth of a baby to adding a new room to the house; finally going on that south seas cruise to paying off the mortgage or achieving a promotion or re-entering the work force.
Every time you achieve a significant milestone in your life you need to have a recalibration of your protection package. Have a talk to your adviser. Maybe they can save you some money, get you better value for your dollar invested, open your eyes to the real needs of your family if you are no longer here or show you new product innovations you may not be aware of.