29 Jan 2013
By Shadforth Financial Group
As we have previously discussed, protecting your assets and income from an unexpected event is essential. The older you are, the more important this becomes, as there is less time to make up for any unexpected losses.
There have been many examples of financially successful business people who have had their wealth destroyed by an unexpected event which could have been avoided had they taken out an appropriate level of insurance cover.
Even if you have insurance cover there are a number of traps to be aware of which could still cause you grief if you make a claim under the policy. The main traps include:
1. Read the policy's terms and conditions
The terms and conditions of an insurance policy are very important yet very few people actually read them. To the average person, reading an insurance policy is like watching grass grow but it is important to look at the definitions, exclusions and general conditions of the policy. A quick overview of the policy and its terms and conditions can potentially save you a lot of trouble in the future.
2. Shop around
As with most services prices vary, so it pays to shop around. There are a number of websites which enable you to compare various insurance policies, their features and prices. A good place to start if you are thinking about shopping around is www.moneysmart.gov.au. Check out their factsheet "Buying insurance: shopping around getting the best deal", a downloadable guide available from the "Tools Resources" page. Tools available online include calculators, quotes as well as other useful information
3. Choose an established insurance company
It is tempting when looking for insurance to make your choice based solely on price. However whilst price is a very important consideration, you also need to look at the reputation of the company towards paying a claim and their financial stability. There is no point having a policy if the insurer rarely pays a claim or does not have the capacity to pay the claim. With the collapse of HIH in Australia in 2001 thousands of ordinary people were impacted when their claims could not be paid. Although inadequate claim reserves, poor disclosure and risk management and inadequate oversight of the valuation of insurance liabilities contributed to the collapse, it would be unwise to merely choose on the basis of price. Since the collapse of HIH, new prudential standards for general insurers were introduced, and in the end the Federal Government stepped in to provide limited assistance in cases of extreme hardship.
In summary, saving a few dollars on a premium is not worth it if you are unable to claim on the policy.
4. Complete the application forms honestly
Another trap that many people fall into is not completing the application form correctly by including all information that would be relevant to an insurer in deciding whether or not to approve or renew the policy application. In the event that you fail to disclose all of the relevant information that is relevant to the insurer, there is a strong likelihood that the insurer will deny any future claim you make. Some of the most common examples of non–disclosure include:
- Failure to advise of a pre-existing medical condition
- Failure to advise of previous insurance claims
- Failure to advise of family medical history
- Failure to advise of any previous offences; for example, drink-driving, offences for dishonesty
You are required to disclose to an insurer any information they ask for, and any information that you know or should reasonably know would be relevant to the insurer's decision to accept the policy. For example, if you advise you are a non-smoker when you are a smoker this is clearly non-disclosure. Be aware that an insurance company will investigate both you and the legitimacy of your claim and will often involve third parties, such as a private insurance investigator.
5. Keep your insurance up to date
Your circumstances are always changing and it is important that when they change you advise your insurer accordingly. Failing to keep your insurance up to date will not necessarily cause an insurance policy to be invalid but may mean, for example, you do not have an adequate level of insurance cover.
Some of the most common omissions include:
- Failure to advise the insurer of a change of address
- Failure to increase your insurance to reflect your changed circumstances, for example, an increase in income or personal debt
- Failure to review your insurance policies to determine whether the policies you are paying remain competitive. Over time existing policies are reviewed and adjusted to suit changing conditions and it is important that every 2-3 years you review your insurance cover.
A final note
For peace of mind having an adequate personal protection package is essential.
If you have any questions in relation to your insurance needs please don't hesitate to contact the Shadforth Financial Group.
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