The Association of Financial Advisers (AFA) in Australia is calling for all life insurance to be underwritten at application time to ensure a better claims experience for consumers.
Buying life insurance over the phone or online after just a handful of questions should set off alarm bells, AFA warns. It means the policy has not been underwritten and at claim time, consumers may well find out they were never covered.
AFA CEO Brad Fox said while over the past few years the opportunity to access life insurance directly has opened to consumers, this accessibility has not transpired into a better claims experience, a situation the AFA argues could be changed with timely underwriting.
“Clearly, the consumer experience when purchasing direct life insurance may be perceived as better because the customer only has to answer a handful of questions, doesn’t have to go through the underwriting process, can make the purchase via credit card and have immediate cover put in place,” said Mr Fox. “But what have they actually bought? What happens at claim time?”
“It is absolutely clear that the best way to reduce the risk of a policy not paying out at claim time is to see a financial adviser to arrange your life insurance needs,” he said. “It will take longer to put the insurance in place because it will be carefully underwritten in line with your individual medical and family history before it is offered to you. This gives you greater certainty that you are covered if you have a claim.”
Mr Fox said consumers don’t have the same certainty with buying life insurance directly because these policies are not usually underwritten until the claim is lodged.
“At claim time, if a direct insurer determines you had health issues back when you purchased the policy, or even in the years before, they may only refund the premiums and not pay out,” he said. “We think that is unconscionable.”
Financial advisers arrange around half of the life insurance in Australia.