Life insurance includes income protection insurance as well as insurance against the risks of death, injury or serious illness. It can be complicated so many people work with an adviser to find the best option for them.
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.
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.
|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.
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