Diana Clement 's Opinion

Your Money and careers writer for the NZ Herald

Diana Clement: Life insurance at the click of a mouse

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Buying online has advantages, but policy wording is still critical

Some policies do not cover death as a result of drink driving. Photo / Thinkstock
Some policies do not cover death as a result of drink driving. Photo / Thinkstock

Point, click and insure your life. Many Kiwis who need it don't have life insurance. If you're one of them, the problem can be solved in 10 minutes if you have access to the internet.

Buying life insurance online is increasingly common. The Warehouse, LifeDirect, Pinnacle Life and others offer insurance that can be bought completely online, provided you have reasonably normal health.

Insurance can be complex and sometimes it's best to seek advice from a financial adviser who lives and breathes insurance. But many people find the process of buying insurance intimidating, says Peter Neilson, chief executive of the Financial Services Council.

Neilson, whose organisation represents both financial advisers and the direct life insurers, says most Kiwis don't have adequate insurance and "any channel that finds a way to get to more people in a way they are comfortable with is a good idea".

Online insurer Pinnacle Life says its statistics show females have a preference for buying insurance online. "With the majority of financial advisers in the industry being male, we suspect this statistic has to do with the value female applicants put on the privacy of their health information," says Ed Saul, a Pinnacle Life partner.

It takes 10-15 minutes to buy life insurance online provided you have information about your health to hand. You will be asked a series of questions about your health and lifestyle and if the answers are straightforward you will be offered a policy electronically.

It is still possible to get life insurance online if you have a pre-existing or hereditary medical condition. The Warehouse online application, for example, asks reasonably in-depth questions and for many conditions it can still provide an instant quote.

I had a bit of a play around this week and The Warehouse website loaded the premiums according to the boxes I ticked. In one I answered hypothetically that a close relative had been diagnosed with multiple sclerosis and it added over $90 to the monthly premium. If the medical conditions are too complex the application is forwarded to underwriter Sovereign.

The most important thing with life insurance is to answer the health and lifestyle questions fully and honestly. If not, you may be paying for nothing. It's also essential no matter how you buy insurance to read the policy from cover to cover.

Some financial advisers tut tut at online insurance. Yet the online application process is very similar to the exercise financial advisers go through with clients. I'm not convinced people are likely to be any more truthful or take the process more seriously in the presence of a financial adviser than they would be online. They may, however, be made aware of more alternatives to the policy they are looking at.

Saul agrees. "Generally, we see more complete disclosure of medical information from applications received directly online versus applications filled by third-party advisers. This may be because applicants filling out the application without an adviser may tend towards being overly cautious. In any event, the outcome is positive for both the insurer and the applicant."

Another advantage of buying online, says Phil Devlin, general manager of financial services at the Warehouse, is that customers can do their applications in their own time, which might be 9pm at night when the children have gone to bed, or 6am.

There are downsides to buying life, health, trauma and income protection insurance online. These policies are complex and not always easy to understand.

One of the problems with life insurance is working out how much you need - although most people buy what they can afford, not what they need. Consumer has a free life insurance calculator on its website at Consumer.org.nz/reports/life-insurance/calculator that takes into account your outgoings and how much your beneficiaries would need if you died.

Neilson says what a person "needs" isn't just about the dollar sum of cover. They might need life insurance combined with income or mortgage protection and a funeral benefit. Or it could be a combination of life and trauma (lump sum payment on diagnosis of certain illnesses) insurance.

One of the disadvantages of buying life insurance online is there can be less flexibility and fewer additional options. For example, you might want to have both you and your partner covered. Or, in many cases people choose policies that have add-ons for income protection, medical/health and trauma cover. Not all online insurers offer this. At the Warehouse, for example, that's not possible at present. The policies offered by LifeDirect do, however, include options for health and/or trauma cover.

People buy separate policies. Usually, however, there are discounts to be had by lumping them together. Therefore buying life insurance from one provider and income or mortgage protection from another may end up being no cheaper than a policy bought through a financial adviser.

Another big advantage of buying through a financial adviser is that he or she can lodge the claim with the insurance company on your behalf (or your beneficiaries' behalf) and be your advocate. That can be helpful if there is a problem and you need someone to go into bat for you. For the record, LifeDirect does do that for its clients, but with other online policies you or your beneficiaries may have to do the legwork of the claim.

Price is a factor in some people's decision to buy online. Devlin says although the Warehouse's life policy is identical to ASB's and both are underwritten by Sovereign, his policy is cheaper. That's because the Warehouse takes a smaller commission from Sovereign than ASB does, he says.

I tested the online quoting system for three of the websites this week and the monthly premiums for me were all in the $30s. For the same level of cover and terms and conditions FidelityLife, Asteron Life and Tower were all charging in the $40s - or $120 a year more.

Whether the extra cost of buying through an adviser is worth it depends on policy wording, your need for advice and how important it is to have someone else liaising with the insurance company on your behalf.

Not all policies are created equal and the devil is sometimes in the wording. Interestingly, LifeDirect, which doesn't offer its own insurance but sells standard life insurance policies for OnePath, AMP, Sovereign and other leading insurance companies, says most of those policies are similar. All have just one exclusion, suicide within the first 13 months.

Other policies may have more exclusions. Pinnacle Life excluded journalists (and military personnel) who are deployed overseas. The BNZ's LifeCare policy excludes involvement in an unlawful act. If, for example, you died as a result of drink driving, the underwriter may not pay out, whereas most of the other policies mentioned in this article would in that circumstance.

It's also worth considering whether the policy you're buying allows you to increase your cover to a certain level without further medical questions. You may have, for example, suffered a heart attack, but need more cover because you now have a family and a bigger mortgage. Of the policies on LifeDirect only AMP didn't offer automatic increases.

Some policies may waive premium benefits if you're unable to work because of disability.

Another issue is when the life insurance pays out. Does it pay out when you're diagnosed with a terminal illness and are expected to die within a certain number of months or just when you die? Will an advance be paid to your loved ones on your death to pay for funeral expenses?

Very few life insurance claims are declined. "In just over six years of selling life insurance online, we have only declined two claims," says Saul. "Both cases involved blatant non-disclosure." One had failed to declare that he was in renal failure and receiving dialysis when he applied for the insurance and the other one failed to declare that he was receiving treatment for diabetes, high blood pressure and high cholesterol.

- NZ Herald

Diana Clement

Your Money and careers writer for the NZ Herald

Diana Clement is a freelance journalist who writes about personal finance and careers. She has worked as a journalist for more than 25 years in both New Zealand and the UK. Diana has contributed to a large number of local and international publications. Her pet topic is the secrets of saving money.

Read more by Diana Clement

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