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27 June, 2017 - 03:05 PM GMT

The cost of convenience - 5 things to know when buying direct life & income insurance

You do not buy a trolley full of groceries from the corner store, you never buy good coffee at the service station and you certainly never purchase drinks & lollies at the cinema - unless you’re happy to get ripped off. 

Full disclosure - I knowingly pay 500% above cost for hot popcorn at the cinema and that’s a decision which I am comfortable with. I once did go to the mother's room of a shopping centre (like before a 9:30pm movie - so no one was in there) and microwaved packet popcorn; however, it was just weird. So, I have stopped that practice.

 

Why are we adding our Life & Income insurances when we check out at the supermarket or buying it after you buy your snuggy or power mixer during daytime TV?  Think about it. Anything you buy from TV is generally rubbish and anything you buy from a provider that it’s not their core service as a “tack on” is generally not a superior product OR the price is so inflated as they are charging you for convenience.

 

Think about this further… national electronic and whitegoods providers will sell a TV or fridge for $1 over cost. They do this as the more they sell the cheaper they can buy these items for with their large buying power. Not only that & more importantly for them; they get you in store and a chance to SELL you extended warranty, finance or an overpriced HDMI cable. Think about it next time you’re buying a larger electronic item, you will see the salesperson is not in the business of TV’s or fridges but the business of extended warranties and finance! 

With the under-insurance problem in Australia every Tom, Richard and Harry is getting on board with becoming a direct provider of insurance on tv & the internet (sounds convenient) or allowing it as a tack on item when one purchases their weekly groceries (also sounds very convenient).

Do not be fooled by large household name car insurance or “General Insurance” providers also tacking on life & income insurance for convenience (convenient for their sales figures, not your benefit!) as this is not their core business model. “I only called you to insure my car not my life, income and cat”.
 

For the purpose of this article, any life insurance not “advised” through a financial adviser is called “direct insurance”.

 

When it comes to buying “direct insurance” note the following:

1.       Like-for-like policies compared to an advised life insurance product is generally double the cost of what a financial adviser can set up for you.

2.       These products are generally not set up in the most tax effective way, in terms of how you can pay for the premium (i.e. possibly tax free for death cover from superannuation monies). This exacerbates the cost issue.

3.       The products are not fully medically underwritten at the time of the application. This means if you had a claimable event and there was a medical issue or pre-existing condition a claim may not be paid. When you buy insurance, you are buying a potential claim and above all you need certainty.

4.       You may not be covered for death or disability due to once off unplanned recreational or holiday activities such as riding a scooter in Bali.

5.       Your Income Protection claim period will most likely be for only 2 or 5 years. Not until age 65 or 70. If you could never work again, why would you want your insurance benefit to stop after 5 years?

 

A good financial adviser will be able to highlight many other benefits of taking a quality advised insurance product.

 

As you can see I am not just talking about the cost of convenience in terms of dollars but very much the cost of benefits and features of products which you think should be ‘built in’ that are not.

 

Remember; when it’s a convenience purchase like the examples above you either:

-pay too much

-get an inferior product

-or both!

 

Glen James

Managing Director
Fortify Financial Advice Network