How to navigate the maze of choosing insurance | MLC Life Insurance

01 October 2014

How to navigate the maze of choosing insurance

Picking the right combination of personal insurance policies is like working your way through a maze. There are so many options to select from, and it can be difficult to tell the difference between them.

Buying insurance is also unlike most other purchases you'll make in your life. That's because:

Once bought, you hope to never get any use out of your policy

 I’m a huge advocate for having proper cover in place, so that if you become ill or injured you won’t have to worry about your finances. But the only time  you make a claim on your personal insurance is when you’re either ill or injured. Obviously, this is a situation best avoided. It’s far better to remain healthy than make a claim on your insurance.

You might want to buy less cover that’s more comprehensive

Usually when we’re buying – we love to get more, but pay less.

Insurance is different. Typically, if the premium is at a lower rate than an alternative, the cover offered is either a lower amount and/or also less comprehensive.

I often encourage clients who are working to a specific insurance budget to take out a slightly smaller amount of cover that is more comprehensive. This is because a policy that is cheaper and less comprehensive might have exclusions that mean you won’t receive a payment when you need to make a claim.

For example, if you have income protection insurance, did you know that an indemnity definition means your monthly payment could be reduced if your income has reduced since you applied for cover ? This is really important if you’re self-employed.

Maybe rather than going with the less comprehensive policy to save on premiums, you might be better off having stronger cover for a smaller amount of income. It’s possible to adjust to receiving 70% of your income as an insurance payment. Adapting to 0% if the policy doesn’t pay is much harder.

Initially cheaper cover can cost you more in the long run

If an insurer is charging too little in premiums to cover the claims it’s paying, it will have to increase its premiums over time. An insurer that is dramatically underpricing cover in order to win a lot of new customers will similarly have to dramatically increase premiums in the future.

As the insured however, the future may be when you least want to return to the market and select new cover. For one, it’s a time consuming and not terribly exciting process. There’s also the risk that you’ve had an accident, or been ill, and are no longer able to purchase new cover on the same terms as before. This means you’re stuck with the cover that you have in place, and if your insurer has increased prices to make up for earlier underpricing, you may be left with no choice but to pay the higher premiums.

So, as counter-intuitive as it sounds, what seems like a great deal at the start might not be what you want. Your long-term cover needs might be better met by an insurer who is pricing appropriately from the beginning.

Need help navigating the maze?

Speak to a financial adviser about choosing the right insurance cover for your personal situation. You can contact an adviser in your local area here.


Important information

This publication has been prepared by Michael Miller, an authorised representative of GWM Adviser Services Limited trading as MLC Advice (ABN 96 002 071 749, ASFL 230692) (“MLC Advice”). MLC Advice is a member of the National Australia Bank group of companies (“NAB Group”). Any advice in this publication is of a general nature only and has not been tailored to your personal objectives, financial situation or needs. Accordingly, reliance should not be placed on this publication as the basis for making any financial investment or insurance decision. You should, before acting on this information, consider the appropriateness of this information having regard to your personal objectives, financial situation or needs. We recommend that you obtain financial advice specific to your situation before making any financial investment or insurance decision. Opinions constitute the author’s judgement at the time of issue and are subject to change. Neither MLC Advice nor any member of the NAB Group, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this publication.