Ensure you are Insured
Hamish Broome's interview with Christoph Schnelle published in The Northern Star on 9th March 2016
Warning over life insurance
FOLLOWING shocking evidence of dodgy conduct at one of the country's biggest life insurers, CommInsure, a Northern Rivers insurance broker has provided some valuable advice on how to navigate the pitfall-prone life insurance industry.
Goonellabah life insurance broker and financial planner Christoph Schnelle said the $14 billion industry was incredibly complex and always changing - potentially leaving unwitting consumers with false expectations.
Even more complex and more important than death cover is total injury and permanent disability (TPD) insurance, which is usually triggered two to three times more often.
"If you have a disability insurance that only pays out when you can't eat or dress yourself or get out of bed, then that insurance is almost worthless," he said.
"But if you get a disability insurance that pays out if you are a carpenter and can't work as a carpenter anymore, although you could still work as a hardware shop owner, then that is a good policy.
"TPD policies come in three flavours - very good, okay, and almost impossible to claim.
"The okay one pays about twice as often as the life policy, and a very good one pays three times as often.
The same rule applies for insurance against death.
"If you have a life insurance policy that only pays for accidental death - which is only one in seven of all deaths - then that's a really bad policy."
"But if you have a life insurance that pays up to two years before you die (in the case of a terminal illness), then that is a good policy."
Mr Schnelle said life insurance providers had strengths and weaknesses - some were good for people with existing health issues, some had very good occupation definitions, others offered a particular feature one person might need but not others - and some were simply nice to deal with.
Sometimes things people assume they are covered for aren't. Right now, for example Mr Schnelle believed that only three providers offered reliable heart attack clauses in their policies.
Buyers should also be wary of life and injury insurance policies automatically arranged by superannuation funds.
For a generally healthy person, it can be worth ditching the superannuation policy and getting a new one.
"The insurance companies have been losing huge amounts of money providing insurance through super, and therefore those who do it, they don't enjoy paying claims. Reinsure, who insures insurance companies, lost $300 million in a single year on paying these super policies."
Mr Schnelle said a good insurance broker could find good cover at a better price, often 5-10% better for their clients than people going it alone.
Most brokers can also arrange for life insurance to be paid for out of super, meaning no cash out of disposable income.
"A rough rule of thumb is a good policy costs about 4% of your gross income," he said.
The most important time to have life insurance is from the time a couple gets engaged to the timet heir youngest child is about 15 - when families have high overheads, less income, and are in a vulnerable position.
Not everyone needs insurance, either.
"If you don't care about (the risk of) losing your house, and living on the disability pension, don't bother with insurance."
Comment from FredBear:
"How to get paid by your life insurer: Die.
"Reply from Christoph:"
Do you mean it is completely futile to take out insurance? What is an insurance payout worth once you are dead. To you, possibly nothing but to your partner and children - quite a lot. If you get your life insurance as a terminal illness payout then it can have an enormous value to you. The last year of our life tends to be the most expensive and it will allow you to have proper medical care, to pay carers if you so choose and your partner may be able to take time off etc, especially if your life insurance doesn't just pay off your debts. There are a whole host of other effects. Many people are starting to understand this as a few years ago only 15% of claims where terminal illness claims but now it is 25%. In addition, if you *DO* survive, you don't have to pay the money back. My last comment that you don't need insurance if you can live with just having disability insurance and renting - for many people that is actually their only choice. They don't have enough money to pay for insurance and that is an unhappy state of affairs. For many others, though, they do have a choice, they just didn't realise as insurance can be very cheap if you are in the prime child rearing years. The cost of life and disability insurance varies hugely with age."