Note: I am NOT advocating for my own services here. I don’t recommend specific insurance products, help with applying for insurance and the underwriting process, or assist at time of claim. I refer clients to people for this process (and don’t receive anything for doing so).
If you need personal insurance, such as life insurance or income protection insurance, it might be tempting to contact an insurance company directly or use a comparator service such as Life Direct (www.lifedirect.co.nz).
I don’t recommend this. I recommend using an insurance adviser with a relationship with a number of different insurance companies.
I have a better-than-average grasp on personal insurance, and I use an insurance adviser.
Insurance policies are different
Insurance is complicated. Don’t believe anyone who says that one policy is the same as any other. That’s not true.
A product adviser is likely to have a better understanding of the technical differences between all of the insurance policies that are available.
Some products are more expensive than others, but have better policy wordings and are worth paying extra for. Some insurers can be better for underwriting in relation to certain health issues or hazardous activities, and some insurers can have a better reputation for making payments at claim time.
A professional adviser will be able to advise you on the best products and issuers for your personal circumstances.
This blog is made possible by Fairhaven Wealth, my independent, fixed-fee, advice-only financial planning business.
If you’re dealing with a representative of a particular product issuer, they’re likely to say that their product is suitable for you, but they’re not going to be aware of the nuances and differences between policies available on the market.
Your insurance will be fully underwritten
Many organisations will place you in a product that involves underwriting at the time of applying for the policy rather than underwriting at the time of claim.
If you arrange insurance through a good adviser, it’s likely your insurance will be underwritten at the time of application.
What this means is that if you ever have to apply for a claim, you’re going to face a lot less scrutiny, and experience a lot more certainty, compared to if underwriting takes place at the time of claim.
Underwriting at time of claim gives the insurer greater scope (and incentive) to look for anything that will get them out of paying for the claim. It’s harder for the insurer to do this if underwriting took place at the time you took out the policy.
A product adviser will be more useful at time of claim
You take out insurance in order to be paid when you make a claim.
A product adviser will be able to assist you at the time that you make a claim. They have expertise in this and make the process easier for you, during an already stressful time.
If they have relationships with multiple insurance providers, they are will have additional leverage to negotiate a successful claim than if you represented yourself or dealt with an adviser who is affiliated with just one insurer.
If you’ve been dealing with a representative of the insurer, they have very little leverage, and probably have greater incentive to back their employer than their client. An adviser who has relationships with other insurers, on the other hand, is more likely to back you, and has leverage in the form of a book of existing clients and future clients who they’re far less likely to place on that insurer’s books if they don’t pay out.
But aren’t insurance product advisers conflicted?
Insurance product advisers invariably are remunerated through commission.
Representatives of insurance issuers often don’t receive commission. Take this advertisement as an example:
It implies that the representatives of this company don’t receive any incentives to sell products. It states that the company “acts with your best interests in mind”.
However, I bet you that these representatives have sales targets. And I bet you that if they don’t meet their sales targets, their jobs will be on the line. It may not be commission, but it’s a pretty good incentive to get people to sell their products.
Think of the commission your product adviser receives as a distribution cost that’s baked into the cost of the product. If the insurer didn’t pay commission, they’d use the same amount of money employing staff or marketing to prospect you as a client.
You’re not really saving anything by going directly with the insurer. But compared to using a good insurance product adviser with relationships with multiple insurers, it’s likely to cost you a whole lot more if you need to make a claim.
As mentioned above, I do NOT provide product insurance advice. I provide fixed-fee, product-agnostic advice. In other words, I tell people what type of personal insurance cover they need, and a suitable level of cover. I then refer them to product advisers I think are suitable for them. This is the only way I’ve worked out how to provide insurance advice while keeping my incentives totally aligned with those of my clients. Visit www.fairhavenwealth.co.nz for more.
I am happy to refer people to insurance product advisers who I think would be a good fit for them. I receive nothing in return for these referrals. Contact me if you’d like to discuss.