Common Insurance Mistakes

The 13 Biggest Insurance Mistakes Aucklanders Make When Buying And Renewing Their Insurance.

Things have changed a lot over the last 30 years while I've been an Insurance Adviser in Auckland. More people are buying online, and even more people than ever are incorrectly or under insured. Overwhelmingly, the new clients I see are all making similar mistakes, usually due to poor advice and incorrectly structured products. If you're making any of these mistakes, it's in your best interests to review your insurance.


Regards, Bill O’Brien, Managing Director Montage Financial Services.

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1. Having the “it won’t happen to me!” or “she’ll be right” attitude.

Statistics suggest sometime in everyone’s life something bad might happen… unfortunately we can’t predict with certainty what might happen. But you can build a plan to try and combat whatever comes your way. Ask yourself ‘What do I need to cover? My mortgage, my debt, my student loans, future education for children, future health care, future income, my partner’s superannuation…?” the list is extensive …


By not budgeting for the important things you’re walking on a tightrope. Why not spend a small percentage of your income to protect yourself so that if anything bad happened you’ll keep receiving that income and more. If the unthinkable happens (serious illness) you’ll probably need far more than just your income protected to maintain a good livelihood.Insurance is not a crippling expense - not having the right insurance is. For a small percentage of your income you could create a ‘rainy day fund’ should the unexpected occur. It’s safety boots. It’s a seat belt. It’s what you know you should do.


2. Buying insurance based on price.

Understand this: price is just ONE of the factors you should consider when buying insurance. Yes it’s important… but not at the sacrifice of actually getting what you need. Insurance is two things: it’s a promise from the insurance company to pay (hence the reason for buying from safe and reputable companies) and secondly insurance is protection from low probability events that have a high impact.


Sometimes insurance companies will quote cheaper prices in the short term with ‘rate increases’ that kick in during the term. It’ll look attractive to buy the cheaper policy today but over the life of the policy it’s not cheaper.


Further, you may find that ‘cheaper’ policies may have ‘lesser’ cover so the product’s fine print is especially important to at least understand. When comparing quotes from different insurance providers it’s essential to compare apples with apples… know what you’re getting before making big decisions and definitely don’t let price be the final decider. This is what an adviser is for. Just like going to a medical specialist, an insurance broker (specialist) will provide advice and make recommendations on what is best for you.


3. Taking advice from people who do not have the appropriate knowledge.

Everyone knows a guy. Why do so many people, without comprehensive insurance, dish out advice on getting cover? Seek counsel from advisers who know their stuff because they’ve done it before and are qualified. Just because someone has minimal insurance or bought it online, does not qualify them to give you advice.


4. Being scared by complexity.

Understanding how your insurance works is important for your own personal situation. Learn the ins and outs and the insurance jargon so you can get the most from it. Take it upon yourself to learn at least the basics. You don’t have to understand everything, just work with someone you trust and whom you believe will be there when/if you need them.


5. Not having the correct structure.

Making sure your insurance is structured correctly and understanding the implications of this is important. Here’s an example: say you have some Trauma cover and you get a skin cancer (melanoma), not uncommon, often treatable… not nice but sometimes beatable. The ‘buy-back’ option will allow you to get back to the original level of cover you had with no evidence of health, 12 months after the claim. This will typically cover you for all of the original events, except the event that caused the claim (cancer). Should you suffer another claimable event for a different cause, eg. Heart Attack, then you could receive a 2nd claim payment. People buying online may not factor this in and may go without protection where they could have benefited if their covers were structured appropriately at the beginning. Yes it’s a little more expensive but it’s a tough game to master by yourself.There are many issues that are beyond the scope of this blog. For example, when working with an experienced adviser you’ll learn about linking cover versus stand-alone cover, waiver of premiums (insure your insurance), buy back clauses (above), minor and major covers, and implications regarding occupation definition options.


6. Lazy spending and excuses about not being able to afford insurance.

What do we mean? Anything that will rust, rot or lose value quickly, like a new car, an expensive holiday, expensive meals out and about… these are costs that can be managed. You see people complaining about house prices and the cost of insurance but they’ll have designer clothes and be upgrading their vehicles regularly. Lazy spending is reckless and irresponsible. Be frugal and smart and you’ll be rewarded in the long term! Buying insurance is an investment that will help you protect your wealth. You can have it all… just make sure that if anything bad happens you don’t lose it all. Insurance is your tool to protect your wealth but like any tool unless you use it properly it’s not going to be of any use. If you’re living in debt you’re very vulnerable to changes and should you lose your income or health, insurance might be your safety net.


7. The wrong type of cover.

If you don’t have kids or debt, you may not need Life Cover, you may be better off with TPD and/or Trauma Cover. We wrote about the different types of insurance in another blog which you can read here.This is just one small example. Having balance in your insurance is essential. Most people have insurance for their stuff but not for themselves - this is not uncommon. There’s a lack of knowledge about insurance and therefore many New Zealanders are under-insured - you need to ask the right questions of an Adviser.


8. Not reviewing your insurance regularly.

Should you be getting your adviser to assess how your needs have changed and getting your insurance updated to reflect a change in circumstances. Your level of debt, children, job changes (promotion or a new role somewhere else)… these are all important factors for your insurance levels


9. Failing to Disclose.

If you don’t correctly disclose your health (current and historical) when getting a policy you could be punished come claim time. Ultimately your relationship with your insurance adviser should be open and honest just like it is with your doctor. You’ll only get the best results long term if there’s transparency.


10. Not Paying the right amount (too much or too little).

Whether it’s for inappropriate or expensive insurance you should be aware that not all cover is equal.Under proper management, insurance becomes more effective at protecting you and more affordable, eg., saving you from possible expenses at time of claim.There is a reason you should choose a good product combination that may cost more. Firstly the cover is generally better, and when buying through an Adviser you should get a customised insurance package that meets your unique needs. If you want to cover your future income, your debt, your children’s education, your future health care, you insurance (yes you can get insurance to ensure your premiums are paid for) and the list goes on… you’ll probably need advice.


11. Always understand the fine print and the costs. 

This does not mean you need to read policies word for word (they’re 30-60 pages sometimes) but at least have some understanding on the differences between an insurance product that is ‘off-the-shelf’ and something that has been tailored to fit your specific needs. You might think ‘I’m not that special!’ but you are. Everyone has different levels of tolerance for risk, different income brackets in combination with debt levels, different health issues and concerns. So many first time (and experienced) insurance buyers get fooled when assessing their options. With just a little more effort, and saving, they’d be much better off with slightly more comprehensive cover than less.


The difference can be significant. You might pay extra per month but end up getting significantly more cover or better worded policies. See how much cover you lose for the sake of a few dollars… it’s best to start with the ultimate package and trim it down based on what you can afford rather than taking something just because it’s cheap. Asking the right questions will give you better answers. Most brokers know how to explain the fine print to you.


12. Not understanding ‘Policy Ownership’.

This a big factor to consider. You’ll want to make sure in the event of a claim that all those you want to benefit from the policy – do so.Sometimes proceeds can take months to be paid if everything is not in order or set up properly. This avoids legal costs and ensures mortgage payments (as an example) are not missed. This is especially relevant to couples or people who have recently changed relationship status. If you don’t know, it pays to ask… when you start mixing legal issues with insurance things start to get complicated.


13. Missing payments.

Protecting your wealth should be the number one priority because if anything were to happen you’ll know your family is covered. Don’t miss the payments, set up an automatic payment and don’t let your income equal your expenses.

It’s free to do a little research or get a broker to help you out.


Make your money work for you.


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