Online insurance: Is it really that easy?

“You’ll get it cheaper online” – we’ve all heard people say it, and probably say it ourselves, because it’s true. The internet provides a platform for businesses to offer services at a much lower rate, and insurance policies are no exception.

Many offer what appear to be ultra-competitive rates for the same level of cover you’d get by walking into a high-street broker.

But it’s not all good news. The biggest danger with buying a policy online is that you’re responsible for ensuring it provides the cover you need.

Get your magnifying glass out!

Be prepared to go through your policy wording with a fine tooth comb. Highlight any language that seems ambiguous or unclear, and get clarification from your provider. Many will have online chat services you can use to do this, or a customer service email address.

Be wary of the underwriter

The majority of online providers ask a handful of generic medical conditions and then issue a policy almost instantly. Which sounds great, but this quick process can cause lengthy delays and serious problems down the track.

Effective insurance provides you peace of mind knowing that if something happens (the thing you are insuring against), then a payment will be made. To give a guarantee of such a payment, an insurance company needs a great deal of information to assess their risk. They conduct a process called “underwriting” to assess this risk.

Don’t buy the first policy you find. Buying insurance online takes time and you have to shop around to get the best deals.

A lot of insurance policies you take out online are not underwritten at the point of issue. Instead the insurance company will complete this step when you make a claim.

When that time comes, the life insurer might well say something like, “you didn’t alert us to your family history of diabetes, so we aren’t prepared to pay out for that related disability,” even though you were never prompted to disclose it. Perhaps because they were so keen to sign you up.

Pre-existing conditions (PEC) exclusions

The PEC exclusion means that if you had an illness or injury, which you had prior to the cover commencing (or recommencing), you won’t be covered until the exclusion is removed. The exclusion period typically goes for 12 months or up to three years but this has been creeping to five years.

A five year increase in the exclusion period may have nasty consequences. For example if you are diagnosed with cancer and die four years after joining a superannuation fund, the insurer won’t pay the claim because the five year exclusion period hasn’t been removed.

Be aware that some types of illnesses or injuries may be specifically excluded from online policies. For example, mental illness claims are one of the fastest growing areas for insurers and to curb this cost, they are increasingly excluding this from their online policies.

Other pitfalls to avoid

Underwriting at the time of processing isn’t the only thing you need to be on your guard for when purchasing insurance online:

  • Online policies can actually be quite expensive. Shop around a little bit, making sure you compare apples with apples.
  • Often you can get better terms and conditions, and more extensive cover, with a fully underwritten policy. For example, you can increase cover if you have children with minimal hassle with a fully underwritten policy, but it’s not always possible or as easy with an online policy.
  • Online policies tend to have lower limits for sums insured, whereas a fully underwritten policy can often have no limits, as long as you pay the premium.
  • Most online providers won’t waive your monthly premiums if you have an unrelated accident that leaves you unable to make payments for up to six months.
  • With a fully underwritten policy, you can lock in an agreed rate that will carry on as long as you do. Online policies often prefer ‘stepped’ premiums that are cheap, to secure your business, but tend to increase as you age.

Give us a call at 08 82314709 or you may also reach us at info@centrawealth.com.au. Get in touch with us to find out how insurance could help you look after your family and your lifestyle.

Article reproduced from MapMyPlan

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Zac Zacharia (Managing Director) has been assisting clients to create wealth and secure their futures for over 14 years.

He is also an accomplished presenter and educator

Co-authoring the popular investment book, Property vs Shares.