Picking the right combination of personal insurance policies is like getting your way through a maze. There are so many options, and you are unlikely to be familiar with all the choices.
Buying insurance is also unlike most other purchases you’ll make in your life. Here’s why:
Once bought, you hope to never get any use out of your policy
I’m a huge advocate for having proper cover in place, so that if you’re ill or injured then you don’t have to worry about your finances.
But this is the key, if you’re making a claim on your insurance, it means that you’re ill or injured.
Once you’ve put your policies in place, it’s far better to remain healthy and uninjured throughout your life. It will mean you haven’t received any payments back from your insurance, but you have your health which is even better!
You might want to buy less, for more
Usually when we’re buying – we love to get more, but pay less.
Insurance is different. Usually, if the premium is at a lower rate than an alternative, that means that the cover is less comprehensive.
I often encourage clients who are working to a specific insurance budget to take out a slightly smaller amount of cover that is more comprehensive. This is because a policy that is just cheaper might have important exclusions that mean you don’t get paid when you have a claim.
For example, if you have income protection insurance, did you know that an indemnity definition means your monthly payment could be reduced if you weren’t earning as much before you claimed? This is really important if you’re self-employed.
Maybe rather than going to the less comprehensive policy to save on premiums, you’re better off having stronger cover for a smaller amount of income. It’s possible to adjust to receiving 70% of your income as an insurance payment – adapting to 0% if the policy doesn’t pay is much harder!
You don’t want them to charge too little
At it’s core, an insurance business is about collecting a large number of small premiums, so that in a small number of cases they are able to make large payments to those who are claiming (people who have become ill, injured or disabled).
If an insurer is charging too little in premiums to cover the claims that they’re paying, inevitably they are going to have to increase their premiums in the future. An insurer who is dramatically underpricing cover in order to win a lot of new customers, is going to have to increase their premiums in the future to make up for this in the future.
For you as the insured however, the future may be when you least want to have to go back to the market and select new cover – for one, it’s a time consuming and not terribly exciting process, but there’s also the risk that you have had an accident, or been ill and are no longer able to purchase new cover on the same terms as you had previously. This mean’s you’re stuck with the cover that you have in place, and if they’ve increased prices to make up for their underpricing in the past, you may have to stay with them.
So as counter-intuitive as it sounds, a great deal at the start might not be what you’re after. Your long-term cover needs might be better met by an insurer who is pricing appropriately from the beginning.
Need help navigating the maze?
Not everybody finds trawling through insurance policies an interesting use of their time, but we do! If you need some help through the maze the first step is to book an appointment. Just give us a call on (02) 6247 1233 or email email@example.com to get started today.
(image credit: Public domain unsigned image via Wikimedia Commons)