Most of us know that you can walk into a retail store and physically speak to sales person, have the item demonstrated all for free and then go home search for the item using a ‘Best Price’ search engine and have it shipped to your front door within a few days at a cheaper price than the retail store.
The internet has become the bane of the store front retailer. It is all to do with the economics of the situation.
The physical shop owner has high overheads associated with running a physically located business model – lease payments, water and electricity, wages and labour on costs, liability insurances to name a few.
It is obvious that the online model can sell the product for less as their profit margins are higher because the overheads are significantly lower.
Here is a bold statement that may not at first compute – so listen carefully – When you buy personal risk insurances online (Life, Total and Permanent Disability, Income protection etc) it is usually MORE EXPENSIVE and Gives LESS SECURITY at claim time than sourcing the insurance through a general insurance adviser providing specialised advice using retail products!
Yes I said it is usually MORE expensive and provides LESS CERTAINTY if a claim is made – WHY?
Let me explain the insurance model to you and you will understand why…
Buying insurance is nothing more than a ‘risk transfer’ strategy. Say you have a family with young children and your wife can’t work for at least the next 10 years. You have a small amount in super, no savings and a $400,000 mortgage. So if something happens and the husband is lost to the family through some unforseen event there is a problem. How would his family survive? Sell the home, rent and try and survive on government benefits? Hope that she re marries quickly to a wealthy man who wants to take on 3 young children? Move in with relatives?
For on average less than 3% or his income the husband can obtain a life insurance policy appropriate to solving this situation which could very well be in the region of a $1M + policy.
If he dies the company guarantees to pay this amount within the contractual terms of the policy.
Say the worst case happens within 12 months of the policies life and the company pays out $1M to the wife. This of course is an unfortunate event but the man’s family is provided for. The question is how can insurance companies survive. They may have received less than maybe $1000 in premium and paid out $1M?
Quite simply it is a numbers game. They bet on the fact that most people won’t claim and they pay actuaries to assess the risk based on statistical information related to gender, age and the risk of certain health conditions developing into a claim.
No they are not a benevolent society, they are businesses with accountability to shareholders that demand a profitable return on their capital.
So why would an advisor sourced retail product be cheaper?
You have heard the advertising on TV or the internet – give us basic information, you will be able to access the best price with no medicals or long awkward health questionaire’s and get a quick answer with cover for less than a few dollars a week and you can also speak to a consultant who can provide general advice only – hey presto – peace of mind and painless!
There is a well know saying – you get what you pay for and there is no such thing as a free lunch – we all deep down know this to be true.
Why would an insurance company give you the ability to get your cover so easily and cheaply just because the channel is online?
The reality is that the less information you give them up front to assess the risk of paying you a claim the higher there risk is – hence the risk premium is built into the premiums you pay.
Likewise the higher the risk to them the less likely they are to include many of the important features of a full retail product and the greater the chance of policy wording falling in favour of minimising the insurance companies risk which translates to less certainty of a claim succeeding if for example you had pre-existing conditions that lead to the claim that the company had not asked for information on which is a typical disclaimer in a direct risk product.
The moral of this story is that the more you disclose to them the cheaper the premiums can become and the higher the quality of the contract will be.
This is where an Insurance Specialist can assist you and guide you through the minefield, of strategy, amount of cover, structure of cover, company/product choice and policy wordings along with yearly reviews and provide educated assistance at claim time.
CLICK HERE If you would like a review of your present personal or business risk insurance strategies or policies. You will be directed to a form that will gather some basic preliminary information that can be assessed by an experienced, accredited Life Risk Insurance Specialist who will assist.
General Advice Warning:
The information contained within this website does not consider your personal circumstances and is of a general nature only. You should not act on it without first obtaining professional financial advice specific to your circumstances or you may make a decision that is not in your best interests.