Does your insurance have holes in it?

Insurance is there for a rainy day, but what if your safety net has a hole? Here’s a real life example that would affect most of us.

I often hear, “Insurance? Got it covered. I’ve got it in my super.” You may well have insurance in your super, but that doesn’t mean you’ve got it covered. Here’s why.

The same client had two different policies.

Policy one is a fully underwritten personal insurance policy. Under my advice, we selected the policy specifics and the amount of cover. He answered 100 medical questions so that the insurer understood his situation fully before issuing the policy.

Policy two is default insurance in a major, award winning, super fund. Default cover means he didn’t apply for it, it was just included in his super fund.

Here’s what happened at claim time:

Total and permanent disablement (TPD) is the big one. You’re still alive, but something has happened that’s so severe that wont work again. Ever. This is signed off by two independent medical specialists. It’s final. Forced retirement today.

The insurer under policy one spent a long time looking at the details, understood the medical situation, understood that the client would never be able to work again and paid the insured amount in full.

The insurer under policy two also took a look at the detail, also agreed to pay, but the devil’s in the detail. Around 2016 they decided to change the contract. The amended contract states that instead of paying the sum insured in one go when the client needs it, they can split up and pay over 6 years. In addition, they make no allowance for inflation. In short, you get less.

Put simply would you prefer:

  1. $100,000 in your bank account now to cover medical expenses, or
  2. $16,666 this year and have to wait 12 months for the next payment – 6 years to get your money

Before we have a pop at insurer number two, there’s a simple practical reason they do it. They offer cover with very few restrictions, they cover almost everyone with hardly any questions asked up front. When you offer insurance on those terms, you have to pay out more often and it gets expensive for the insurer so they tweak the terms.

I’ll let you mull over the right or wrong. Whichever way you answer, it won’t change the outcome for you personally. The question is whether you want to have a rock solid plan B, or one with a couple of holes?

If you want to get it right, you don’t have to do it yourself. Take the first step towards a rock solid policy for you and your family and click on the link

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