By Jenée Tibshraeny
Doing comparisons when shopping for the right mix of life, health, trauma cover and/or income protection insurance is near impossible for the ‘average Joe’.
Therefore the most constructive thing you can do as you embark on your insurance shopping trip, is understand the marketing techniques insurers with different distribution models use, as they communicate information about their products to you.
This is the [not so] profound conclusion I have drawn as I’ve endeavoured to write a column giving consumers tips on weighing up the prices and quality of cover between different insurers.
For virtually every other product or financial service you wish to buy, there seems to be some standardisation across their core features that you can compare.
Furthermore, the information you need to make this comparison is often easily accessible online and available from the entity selling you the product or service.
You need to take out a mortgage, so you compare interest rates and repayment periods between lenders, having retrieved the figures you need from lenders’ websites (or interest.co.nz of course).
Or you’d like to buy a car, so you compare the fuel efficiency and safety features car manufacturers publish on their models.
Yet it’s a different story when it comes to insurance.
Problem #1: Policy documents not always put online
Of the 20 life insurance providers I’ve looked at, only half have published their policy documents on their websites.
These include AA Life, ANZ, ASB, BNZ, Cigna, Co-op Bank, Countdown, Kiwibank, Pinnacle and Westpac.
Those that haven’t include AIA, AMP, Asteron, Fidelity, MAS, OnePath, Partners Life, SBS, Sovereign and Volo.
It’s worth noting that many of the insurers that haven’t published their policy documents online, have published product brochures and displayed key policy information in a simplified way.
As I’ve written about here, Volo interestingly doesn’t provide customers with a policy document until after they buy the product.
While the usefulness of a policy document for the average Joe is debatable, as like most legal documents they are detailed and often difficult to understand, giving people the option of reading all the terms and conditions of a product worth tens or even hundreds of thousands of dollars, is essential.
Whether consumers read policy documents or not, disclosing them demonstrates basic transparency.
Problem #2: Policy document language isn’t standardised
The second difficulty I believe life insurance shoppers run into when trying to compare cover, is that there isn’t a standardised breakdown of the core features included in a regular “life insurance”, or “income protection insurance” policy that all insurers follow.
To do a good comparison, you need to be confident you’re comparing apples with apples.
Having done a comparison of premium prices and quality of cover between a range of life insurers earlier this year, I can confirm it isn’t a straightforward task.
The challenge was identifying the core features I wanted to compare and then sourcing the information.
Trade Me’s LifeDirect insurance comparison website proved an excellent resource in providing much of this information in a simple format. It also publishes some of the policy documents insurers don’t publish on their websites.
While the tables I put together and commentary I wrote give consumers a useful starting point to knowing what’s out there, collating, interpreting and comparing the data was a time-consuming task that I was only able to complete with the help of a few industry experts and a whole lot of patience.
Had there been more standardisation in policy document wordings between different insurers, this task would’ve been much easier.
I believe insurers need to make consumers aware of the core features of life, income protection, health and trauma cover insurance, so they can compare these themselves.
From there, those with special circumstances or needs for additional cover can put time into investigating their options further or seeking help from an adviser.
The main thing is, the basics need to be communicated clearly.
Explanation: There's no 'one size fits all' when it comes to insurance
Shopping for a life, health, trauma cover and/or income protection insurance mix is difficult because it’s an inherently complex and personalised set of products. There is no “one size fits all”.
Factoring in different family structures, disposable incomes, approaches towards risk, cultural beliefs and lifestyles, really does make for a minefield of consumer demands.
For this reason, the insurance sector hasn’t taken a “one size fits all” approach to selling its products.
The trick from a consumer’s point of view is being aware of the different ways the insurance sector caters for such diverse demands through different distribution models.
Solution: You’ve got to know the game to play the game
- Buying direct
One way you can buy insurance, is through picking up the phone or going online and buying it directly from the insurer.
This can be a good way to go if you have simplistic needs and are certain you know what you want. For example, you’re a single 30-year-old, who rents an apartment and just wants some income protection in case you have to stop working.
Buying direct is also a quick, easy and often more cost-effective way of getting insurance.
If you choose to go down this path, it’s absolutely critical you get your hands on a policy document and read the terms and conditions before signing up.
Without the benefit of an adviser to explain these to you beforehand, the onus is completely on you to avoid any traps which may prevent the insurer from paying out a claim.
Take note of the exclusions and disclose any pre-existing medical conditions you may have, no matter how irrelevant you think they are.
Most insurers that sell direct provide their policy documents online.
- Using a broker or adviser
A number of insurers that sell their products through brokers don’t provide their policy documents online.
These insurers want you to rely on an adviser to help you select the right product and amount of cover for you.
This is a good route to go down, particularly if you have more complex life insurance needs. IE you have a mortgage, a young child and a disabled family member who’s financially dependent on you, so need a more comprehensive mix of insurance.
Despite the usefulness of professional help, it’s vital you still have a thorough grasp on what you’re signing up to. Don’t shy away from requesting a copy of the policy document.
Also be aware of how your adviser is paid. Which insurers are they affiliated with? Do they receive commission for selling you a product, or do they make their money from the fee you pay them?
Don’t be afraid to ask your adviser these questions. Read this for more on what different types of advisers are legally obliged to disclose.
- Buying insurance through your bank
For a number of people, the issue of life insurance first crosses their radar when they take out a mortgage at their bank.
As you commit to spending the next 30 years of your life paying off your $600,000 house, you’ll probably realise it isn’t a good idea to leave this burden to your partner in the event of you being unable to contribute towards the repayment.
Banks therefore have an easy way in to getting insurance customers, keen to get all their paperwork done in one hit, through one institution.
Luckily most banks provide their policy documents online.
Be sure to give these a good read and not be lured in by the convenience of insuring through your bank without shopping around.