The importance of advice and the risks associated with buying direct insurance

The importance of advice and the risks associated with buying direct insurance

Check the policy before buying any insurance, writes Lesley Parker. Read more:

The huge growth in ”direct” selling of insurance, and the high-rotation  television advertising allied with that, has attracted the attention of  financial services regulators.

They are keeping an eye on both the quality of the products being sold and  the depth of information consumers are getting.

”Direct life insurance business has been growing at a high rate and is now a  significant proportion of the retail market,” an executive group member of the  Australian Prudential Regulation Authority,  Ian Laughlin, told a conference  recently.

”We are concerned that the quality of the products and of the business being  written may be poor in some cases. We see examples of expensive products and  high [policy] discontinuance rates.”

The commissioner of the Australian Securities and Investments Commission  (ASIC), Peter Kell, says there’s nothing intrinsically wrong with selling  insurance directly, but if the consumer isn’t getting independent advice then  insurance companies need to ensure consumers understand the important features  of the policy, including any exclusions and the ongoing costs.

The trouble is when it comes to television advertising, the message tends to  be about cost in comparison to rival products, he says. ”As with all comparison  advertising, ASIC would be concerned if the comparisons were being made between  products that weren’t similar.

In insurance, there can be critical differences between the scope of the  cover or items excluded from a policy.”

This is something consumers need to keep in mind when they’re looking at the  policies being promoted to them, he says.

”One policy may be cheaper than another but you have to make sure, in going  for the less expensive cover, that you’re not losing some aspect of cover that  might be important for your situation. Just because an insurance product is  cheaper doesn’t mean it’s the right product for you.”

Recent research by ASIC into the advertising of funeral insurance highlights  some of the issues.

Among other things, the research found there’s confusion about the  differences between prepaid funerals, funeral bonds and funeral insurance,  particularly because the term ”funeral plan” is used for all of them.

With a prepaid funeral, the consumer goes to a funeral director to  pre-arrange and pay for their service.

Funeral bonds are investment products that help people save for funeral  expenses, with the money released after death. They come with tax benefits and  are limited to a maximum of about $11,000. However, there’s no limit on the  premiums you can end up paying for funeral insurance.

Live a long and healthy life and you could end up paying monthly premiums  amounting to the cost of a funeral many times over.

And, as with any other form of insurance, if you stop paying premiums you  lose your cover – regardless of how much you may have shelled out in the  intervening years.

Kell says  ASIC is ”actively monitoring advertising of financial products  and services, including insurance”. In the past two years, ASIC has been  involved in the withdrawal or alteration of  about 120 financial services ads in  response to concerns about their accuracy or clarity.

As for the sale of insurance via supermarket operators Coles and Woolworths,  Kell says that so far they have tended to offer more basic products, such as  contents or pet insurance.  ”But we are monitoring the sector to make sure that  the marketing is appropriate and the offer of products is appropriate,” Kell  says.

Read more: