Insurance trap – remember you are in control!

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Recently I was advised by clients that they had moved to another insurance provider.

Why, I wondered?  We had reviewed the cover in the previous 12 months and confirmed that the type and levels of cover were appropriate, the premiums were competitive, and the policy wordings remained the most robust in the New Zealand market (courtesy of independent research).

I rang them to get some insight into this decision.  They advised that they had refinanced their mortgage and been told that it would greatly improve their chances of the loan proceeding smoothly if they had insurances in place with the same provider.  Sadly, this is complete nonsense! Indeed, it may be prudent to have insurances with one provider and lending with another.

Of greater concern was the terms offered on the new cover had a significant exclusion that did not exist on their previous policy.  Why significant – the exclusion was for the back and the client worked in construction. As such the very health issue they were likely to claim for was high so to accept this exclusion greatly reduced the effectiveness of their policy and therefore greatly increased their vulnerability!

Furthermore, the new income protection policy would pay a benefit for a 5 year period whereas the current policy would have paid to age 65 if required.  Having taken on more debt to buy a rental and with their youngest starting school, this was, in my view a poor decision.

There were other disadvantages to the client such as reduced levels of complementary trauma cover for their children, poorly rated policy wordings and a higher monthly premium!

In order to understand the rationale, I asked if I could see the Statement of Advice that they received from their new adviser – only to be told that they had not received one!  

So what should you be aware of if you are advised to move from one insurer to another?

How will you benefit from making this move?  Yes – premium is one factor but the quality of policy wordings, comparative cover and in terms of policy wordings, the structure of cover and your own health now relative to when you set up your original policy are key considerations.

The need to accurately communicate to the insurer your current and historic health.  An oversight or omission can be costly if, at claim time, there has been significant non-disclosure.  Some insurers have written into their policy wordings “If it is grey, we will pay”. In other words, if the non-disclosure could reasonably have been an oversight on the part of the client, the claim will be considered.  We believe this is a fair approach.

MFAS will provide you with a comprehensive statement of advice which clearly documents the advantages of moving to another provider – if we believe it is in your best interests to do so.  If on the other hand, the cover you have continues to serve your needs then we will advise you of this too. For example, a recent client had a policy in the UK which was set up some years ago with level premiums.  These premiums were locked in for the life of the policy and to change now would have been a costly decision for the client in the long term.

Contrary to this, another client had cover in place for many years, but the structure was now ineffectual for her circumstances, the policy wordings left her vulnerable and she had not heard from her broker for many years.  We structured a plan that addressed all of these issues. There was an exclusion on the new policy which we discussed and deliberated on, and the decision was reached that this would not impact on the effectiveness of the policy and that the exclusion was offset by the clear advantages of the new protection plan.

Information, clear communication and advice that is designed to best serve you – these factors ensure that you are in control of such an important financial decision.


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