As life insurance can be complicated, many people choose to work with an adviser to find the best option for them. Life insurance includes income protection insurance as well as insurance against the risks of death, injury or serious illness.
If your personal situation changes - for example when your children have left home or you’ve paid off your mortgage - you might also speak to an adviser about reviewing your insurance cover.
Insurance advisers and brokers aren’t generally covered by the same strict laws as investment advisers, but they do have the same basic obligation to act with care, diligence and skill.
They are also legally obliged to provide a clear and balanced comparison of your existing and new insurance policies. If they can’t (for example, because they don’t sell your existing product) they must tell you this.
A good adviser will give you guidance on what you need to check yourself.
Look for an adviser who has experience and qualifications in selling life insurance products.
9 key things to know about life and disability insurance
- Insurance policies and premiums can vary greatly. Look at a variety of policies and get at least three quotes. Find out what you would and wouldn’t be covered for under each option.
- Life insurance should be personalised. Think carefully about the type and amount of cover you need for your own circumstances, to prevent being over or under-insured.
- Your honesty is critical. If an insurer finds out you’ve lied about your age, or you haven’t disclosed all your medical conditions, they can change the terms of your cover or cancel benefits. If you’re unsure of your medical history, check with your doctor before completing the forms.
- Most advisers work on commission when providing insurance advice. When consumers buy life insurance through a financial adviser, the adviser receives up to four types of commission. Upfront commission can be as high as 200% of the annual premium and be supplemented by ‘soft’ commissions such as overseas trips, tickets to events, and other gifts.
- There are 12 major providers in New Zealand but most insurance advisers deal with a much smaller number. Make sure you understand the options your adviser has considered before making their recommendation. If you’re not satisfied, you may wish to talk to another adviser, or do your own research on the other available options.
- Life insurance policies often include a ‘qualifying period’. A qualifying period is an initial period of time on an insurance policy during which your ability to make claims is severely restricted. This is to discourage fraud. You may begin a new qualifying period when changing policy, so consider this carefully before deciding to switch.
- Policies that are cheaper initially can be more expensive long-term. Check with your adviser or provider about how premium increases will be managed. A policy that is affordable now could become expensive if premiums increase significantly over time.
- Policy definitions can differ between providers. It’s important to understand your insurance provider’s definitions of key policy terms such as ‘permanent disability’, ‘employment’ and serious medical conditions.
- Changing your policy or provider can be risky. When switching from an existing policy to a new policy, you may gain some benefits (such as a reduced premium) but you may also lose some benefits. For example you could have a claim denied that might have been accepted under your original policy. To avoid getting caught out, keep your old policy running until the new policy is in force.
5 ways you could get caught out when switching life and disability insurance
- There may be differences in cover. For example, you may have a medical history of heart disease, but the new policy has less coronary cover.
- Your new policy may require a new ‘qualifying period.’ You may lose the ability to claim for a period of time after you purchase your new policy.
- Existing health problems may be excluded from your new policy as a ‘pre-existing condition.’ You could have a claim denied that may have been accepted under your original policy.
- Premiums may change. You may pay for insurance you don’t need, or may pay lower premiums in the short term but higher premiums in the long term
- A difference in your provider’s financial stability, customer experience, service or claims processes. You may end up paying higher premiums, or find it harder to make claims.
TIP: If you decide to change your existing policy, make sure your personal information has been recorded correctly. If not, your insurer can change the terms of your cover or cancel benefits. It’s also a good idea to keep your old policy running until the new policy is in force, and you’re happy you’re adequately insured.
For more information about life insurance, have a look at:
The Sorted guide to protecting your wealth
Learn more about:
Problems with your adviser