We all want things to be simple, easy and not take up too much time or cost. Companies pray on this and there is no better example than the personal insurances we see advertised on television.

Is it the decision, the process, the cost or the poor perception of the insurers? Australians are under-insured and we would much rather spend time doing other things than making sure our insurances are right. So it's no wonder that when the option to buy insurance on the television for 'the cost of a cup of coffee a day' with just a simple phone call comes up, we consider it. After all, isn't seeking advice expensive and the adviser just want's to collect a commission?

I looked at cover for myself - a thirty-six year old male office worker. Here are the pros and cons.

Insurance off the television

Pro
The only pro was that the process way easy. I applied for a quote online, told them what I wanted, they called me, asked a few questions and provided me a quote. From there it was a five minute phone call with basic underwriting and I would have had cover.

Cons
Con…The cover was restrictive. I could only hold life and TPD outside of superannuation, meaning I would have to fund the premiums from my personal cashflow.

Con…I could only have stepped premiums that would increase with age.

Con…I was limited to a five year benefit period on income protection.

The worst Con…the cup of coffee a day option was expensive. Very expensive. Even if they do give 10% of the premium back after the first year.

Here is the premium comparison:

Type of Cover              TV/Online Provider          Cover via Advisor 
 Life & TPD of $1million $2,010.06  $675.54 
 Income Protection $6,000 pcm         $1,385.28   $715.65
 Total  $3,395.34  $1,391.19

 

The results will vary depending on your age and occupation, but that's what it was for me.

Don't get me wrong, if you seek cover off the television it will be better than having no insurance at all, but in my case using an adviser would:

  • Save me $2,004.15 on the cost of the insurance in the first year. This premium saving would grow each year. If I hold the cover for ten years that's at least $20,041.50 in extra annual cost.
  • The life and TPD could have been held in super where it could be tax deductible and not need to be funded from my cashflow.
  • Provide a superior income protection policy at half the cost. The income protection quote from the television was limited to a thirty day wait and would only pay me for five years, in addition it was going to cost twice as much. I was able to have a policy with a thirty day wait which would pay until age sixty-five if I was sick or injured.
  • Give me the option to hold some of the cover as a level premium that will not significantly increase over time with age.
  • Allow me to structure the ownership, covers and premiums in a way that better suits my cashflow, tax and overall financial position. In addition I am not limited to using one insurer.
  • Give the option to pay a fee for the advice I receive on policy ownership, premium structure and the level of insurance I need.

Based on the above it's not a matter as to whether I should seek advice. If I need insurances, I can't afford not to seek advice. The cost of the advice for me to obtain the above personalised insurance structure might be $2,000 to $3,000 upfront. As long the adviser is going to the time and effort to tailor something for me that's fine. It would clearly pay for itself and save me money, and not just in the long term, but in the short term.

Curious to find out more? Call and speak with Grant today on (02) 6023 9100 or email him grant.lewis@jmme.com.au

This information is general in nature and does not take into account your personal goals, objectives or financial situation. Personal advice should be sought prior to making any investment or strategy decisions. Grant Lewis is an employee advisor of Johnsons MME Financial Advisory Pty Ltd ABN 30 141 828 033 and is authorised to provide advice on behalf of Johnsons MME Financial Advisory. 

Grant is a Certified Financial Planner (CFP) with the Financial Planning Association (FPA) and an acredited Self Managed Superannuation Fund Specialist with The SMSF Association. He has completed a Bachelor of Business (Accounting) and Post Graduate Diploma in Finance (Financial Planning) with FINSIA.