Problem with Direct Life Insurance

In August of last year, ASIC completed a review of the direct life insurance industry and revealed some startling statistics in their report (Report 587).

Direct Life Insurance is defined as being sold to consumers by insurers or their sales partners, by outbound telemarketing, inbound phone calls from consumers, online or face to face (through bank branches). These products are sold with general advice or no advice given meaning that the consumer’s circumstances are not taken into account.

The report revealed that:

– 1 in 5 of all policies taken out were cancelled in the cooling off period

– 1 in 4 of all policies that remained in force beyond the cooling off period were cancelled within 12 months

– 3 in 5 of all policies sold were cancelled within three years

– 15% of claims from direct life insurance are declined and 27% of claims are withdrawn

The average declination of claims across the entire industry is 7%, less than half of that compared to direct cover.

ASIC believe that these high rates of cancellations and claim declines is due to consumers being sold products they don’t want, can’t afford, or don’t perform as expected.

ASIC also found that consumers struggled with the sales experience and complexity of the products, and consumer understanding of key features is often poor. ASIC identified a failure by the salespeople to provide adequate information about important aspects of the cover, including key exclusions and future premium increases. It is hypothesised that this lack of understanding about the product resulted in the high cancellation and claim declines.

A 2015 report, Underinsurance in Australia, with data compiled by Rice Warner revealed that that median level of:

– Life insurance meets 61 per cent of basic needs

– Total and permanent disability insurance meets just 12 per cent of basic needs; and

– Income protection cover meets just 16 per cent basic needs

So not only are people cancelling their covers early, even if they do hold the policies for a long time, the insured amount is often quite low compared to what they require.

At JBS we know that insurance can be complex with often slight differences between policies, but you do not have to try and organise it on your own. As well as selecting the best product for you, we can also help determine the appropriate amount of cover required ensuring that all of our clients are properly insured to protect themselves and their families. Finally, in the event of a claim, we will also be there guiding you through the process making everything as painless as possible.

If you are worried about your insurance levels but are too scared or time poor to go at it alone and would rather seek the help of a professional, please contact our offices at 03 8677 0688.

– Liam Rutty –