I was told Income Protection policies available need to be written through a financial adviser - is this true and if so, why?
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The simple answer to this one is that it is not true! However, the protection provided by the policy is always in the detail.
The insurance market can be a minefield as there is so much information and types of cover available with different terms and clauses that it is important to upskill yourself around what you require.
The direct insurance market has increased over the last few years as insurance companies market directly to the public. There are adverts every day by various providers in the market however the one element that is not provided by these services is the ‘advice’ component.
Quality advice brings together your goals, outcomes and what you are trying to achieve in life and then partners this with the available products, terms and clauses in the market to give you a solution tailored to your personal needs.
When it comes to income protection insurance not all policies are created equal and I often say to clients that your policy is only as good as the contract wording and the willingness of the insurance company to pay claim.
The key benefits I see from partnering with a Financial Adviser and getting quality advice:
- Underwriting is a key part of the insurance application process which involved the insurance company reviewing your health history and making a determination around how they will cover you. Some policies are ‘underwritten’ at the time they are purchased and others are not ‘underwritten’ until time of claim. Partnering with a Financial Adviser can assist in streamlining the underwriting process which can be particularly important if you have any pre-existing health conditions.
- Over the years I have seen many clients who have purchased a policy through the direct market. When we have reviewed the policy we have discovered that what they thought they were paying for was not what they actually had in place. One key definition which I see a lot is an ‘accident only’ policy. These can be cost effective, but will not provide cover if you have sickness or illness or disability which is not caused by an accident.
- Lastly from a strategy perspective there are many ways that you can structure the payment and premium of the policy which can make a lifetime of difference. You can fund some policies via superannuation and you can also select the option to have a ‘level premium’ other an annual increasing ‘stepped premium’.
My suggestion is that you partner with a financial adviser to ensure you unpack what you are wanting to achieve from holding the insurance policies and the best way to structure this based on your personal situation.
Scott Malcolm has been awarded the internationally recognised Certified Financial Planner designation from the Financial Planning Association of Australia and is Director of Money Mechanics. Money Mechanics is a fee for service financial advice firm who partner with clients in Melbourne, Canberra and Sydney to achieve their life and wealth outcomes. We are authorised to provide financial advice through PATRON Financial Advice AFSL 307379.
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