AFA scathing assessment on direct insurance risks
Buying life insurance without a financial adviser might be faster up front, but the sting is in the tail, according to Association of Financial Advisers (AFA) chief executive, Brad Fox.
In a stinging attack on the underwriting practices behind most direct insurance offerings, Fox said buying life insurance over the phone or online after just a handful of questions should set off alarm bells because it meant a policy had not been underwritten and at claims time, consumers might well find out they were never covered.
Fox said it was for this reason that the AFA was calling for all life insurance to be underwritten at application time to ensure a better claims experience for consumers.
“Clearly, the consumer experience when purchasing direct life insurance may be perceived as better because the customer only has to answer a handful of questions, doesn’t have to go through the underwriting process, can make the purchase via credit card and have immediate cover put in place,” he said.
“But what have they actually bought? What happens at claim time?”
Fox said that while a recent survey by Roy Morgan had highlighted the positive customer feedback when accessing direct life insurance it had failed to highlight the full picture which was the poor claim outcomes of direct life insurance.
“It is absolutely clear that the best way to reduce the risk of a policy not paying out at claim time is to see a financial adviser to arrange your life insurance needs,” he said.
“It will take longer to put the insurance in place because it will be carefully underwritten in line with your individual medical and family history before it is offered to you. This gives you greater certainty that you are covered if you have a claim.”
“At claim time, if a direct insurer determines you had health issues back when you purchased the policy, or even in the years before, they may only refund the premiums and not pay out,” Fox said. “We think that is unconscionable.”
He pointed out that financial advisers arrange just on half of the life insurance in Australia, and $5 billion of the total $7.2 billion in claims is paid to clients of financial advisers.
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