Brad Fox

The Association of Financial Advisers (AFA) is calling for Australians to stop and think before cancelling their life insurance to prevent an inadvertently costly mistake.

In the wake of recent media scrutiny on poor claims experiences, the AFA says there is a real danger Australians may jump to the conclusion they should just cancel their life insurance because they fear their claim won’t be paid if something happens to them.

“It is vitally important Australians understand what life insurance they have, and the quality of the contract before making any decision to cancel or vary it,” says Brad Fox, Chief Executive Officer, AFA.

“If Australians do cancel their insurance – whether it be income protection, life insurance, TPD or trauma policy – it could mean that if their health changes in the future, they won’t ever be accepted for cover again.”

The AFA says contrary to recent coverage, around $7.2 billion in life insurance claims are paid each year in Australia benefiting around 100,000 families.

This represents $20 million paid every day, with most of this coming from life insurance arranged through a financial adviser.

“At its best, life insurance is a real life saver for families,” says Fox. “It provides the money that gives them the opportunity to recover from serious accident and illnesses, and time to grieve and maintain financial dignity after a partner or parents’ death.”

There are three different ways Australians usually source life insurance – group insurance through a superannuation fund, direct from an insurance provider or through a financial adviser.

In the case of group insurance, which has been at the centre of the recent media focus, at claim time, the insured person usually has to deal with the super fund, for example an industry fund, and often does not get the chance to talk with the actual insurance company.

“Also, often these policies have been given weaker definitions to allow the price to be kept low for the super fund,” says Fox.

Another way to get life insurance is direct from the insurance providers themselves. In most cases, the definitions used in these policies are not particularly strong and almost always cost more than the other types of insurance to cover the high marketing costs.

Further, many of the insurers do their underwriting when a claim is made which come claim time, means a claim could be denied if an insurer assesses the claimant had poor health, or a poor health history, prior to buying the insurance policy.

The third way to get insurance cover is through a financial adviser who provides advice on the amount, type and policy which is best suited to their clients. They liaise with the insurer on your behalf to make the claims experience faster, easier and less stressful.

“Advised retail policies have the highest quality contracts, the highest claims pay out and are ironically often the cheapest,” says Fox.

In 2013, the AFA engaged the Beddoes Institute to research the claims experiences of Australians with an Advised Retail life insurance policy, publishing the findings in a whitepaper titled ‘The Value of Protection’.

It showed there was a significant gap between consumers’ perceptions of the claims process, including the likelihood of receiving an insurance payment, and the reality of the experience by those that have claimed and have received holistic support – financial, emotional, psychological, social and vocational – from the insurer during the claims process.

For more information on financial advice and to find financial advisers that adhere to the AFA’s strict Code of Practice, visit www.yourbestinterests.com.au

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