14
August
2012

More to insurance than price

Making the right comparisons

Often when people look at insurance they merely get quotes and compare premiums, and just go with the cheapest price. The problem with this is that it is often not comparing like with like.

Truth be known, there are about a dozen personal insurance companies, all of which are reputable and have different strengths and weaknesses. Most have an area where they excel in, whether that be a segment of the market for which they offer cheaper premiums or definitions that result in more claims being paid for certain conditions. Any good financial advisor will compare all insurers to find which product best suits your needs.

There are a number of other important options to compare.

Stepped Premiums vs Level Premiums

This is probably the biggest variant in premiums. Essentially Stepped premiums increase each year with your age, level premiums do not, Stepped premiums start lower than level premiums, however over time increase with your age and assuming you hold the cover for a significant period, in the long run stepped premiums become far more expensive.

For cover that you intend to keep for the long term without reducing it is best to opt for level premiums, covers like income protection and trauma insurance where the need for insurance is likely to increase or at least remain constant, level premiums are recommended if affordable.

Life and TPD insurance should be viewed on a case by case basis, as you cover may reduce as you get older, therefore the level premiums may or may not be appropriate.

Agreed Value vs Indemnity (income protection)

Agreed value is far superior cover to indemnity cover. Agreed value cover requires proof of income at the time of taking out the insurance, however once at claim time, you will be paid the agreed insured monthly benefit, no questions asked. Indemnity insurance is cheaper, however, at claim time you will be asked to prove your income at the time of claim. Insurers have varying definitions for this proof of income, but will pay only 75% of what you had been earning; or the insured value, whatever is lower. This is far from ideal, if your income is reduced for whatever reason in the period leading up to a claim, you may receive less than you anticipate whilst being unable to work.

Underwriting

All personal insurance companies ask for underwriting up front, many regard this as a hassle, however it is much better to undertake underwriting before commencing a policy. The alternative is either “all in” insurance which assumes everyone is of a greater than average risk, and the premiums are higher as a result, or worse still, underwriting at the time of claim, and believe me insurance companies are much more motivated to find a pre existing condition under these circumstances. Many direct insurers that advertise insurance without “the annoying medical questions” are doing one of those 2 things, neither is good for you getting insurance.

The exception to the no underwriting up front being a bad thing is group insurance where they will allow a pre approved automatic acceptance insurance level for a group of people (usually a work place or company)

These are just some of the variables that need to be considered when comparing insurance quotes, and is why it is best to get advice on what is the best option for you when looking at your insurance needs.

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Author; Alex McKenzie Categories: Future Financial Services Blog

About the Author

Alex McKenzie

Alex McKenzie

Owner at Future Financial Services

Past:

  • Paraplanner at Zammit Partners Investments
  • Unit Trust Administrator at Colonial First State

Education

  • University of Western Sydney
  • Penrith High

About

As a Financial Planner I help people to achieve what they would like in life. This involves helping you to identify the things in life they would like , developing plans to help achieve them and strategies to protect what you already have. We do this by providing Financial Advice to guide you through your life stages.

The financial planning process involves determining a clients current situation and financial objectives and tailoring strategies to assist in best achieving those objectives.

I am an expert in superannuation, investments and insurance, these are tools we use to help you achieve your goals.

I aim to use my knowledge of superannuation, taxation and Centrelink to efficiently use your assets and income to achieve your financial goals.

Retirement and pre-retirement planning, wealth creation, asset protection, insurance planning and estate planning are all areas of advice that I provide.

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