5 Red Flags Worth Paying Attention to.
Buying insurance has never been easier – but it’s harder to get right! A few clicks online, a handful of questions, and you can have a policy in place within minutes. While that convenience is great, it can also create a false sense of security. Many people assume that because they have insurance, they are fully protected.
The reality is that not all insurance policies are created equal, let me say that again, not all insurance policies are created equal. Some of the most important details aren’t always obvious when you’re comparing premiums or selecting cover online. Over the years, we’ve seen a number of common red flags that have impacted how well a policy performs when it’s needed most. They aren’t necessarily mistakes. In fact, many people simply don’t know these things should be considered when arranging insurance themselves.
- Focusing on price before cover
It’s natural to see the cost first – focusing solely on price can sometimes mean overlooking important differences between policies.
Two policies may appear similar at first glance, yet offer very different levels of protection when it comes time to claim. Definitions, exclusions, waiting periods, benefit limits and policy features can vary significantly between providers.
The cheapest option isn’t always the best value if it leaves gaps in your protection. The goal should be finding cover that suits your needs and budget, rather than simply finding the lowest premium.
2. Choosing a cover amount without a plan
The common question “How much cover do I need?” There is no one-size-fits all here. Life Insurance, Trauma Cover, Income/Mortgage Protection and Health Insurance are all designed to solve different problems. The right amount of cover depends on your personal circumstances. A figure that “sounds about right” without fully understanding what that amount needs to achieve is not the way to work out your amount of cover.
Identify the financial problem you are trying to solve. Consider:
- How much debt would need to be repaid?
- Would your family require ongoing financial support?
- Do you have children that depend on your income?
- Could your household manage financially if you couldn’t work?
- What options for self-insurance do you have? I.e. Revolving credit facility, investments etc.
3. Not understanding what isn’t covered
Understanding what isn’t covered can be just as important as what is covered. Every insurance policy contains definitions, limitations and exclusions. While most claims are straightforward, misunderstandings often occur because people assume a policy covers something that it doesn’t.
This doesn’t mean insurers are trying to avoid paying claims. It simply highlights the importance of understanding how a policy works before it is needed.
Read your policy documents and highlight anything you are not sure of and ask for clarity.
4. Life has changed, but your insurance hasn’t
Insurance is often arranged during a major life event such as getting married, buying a home, starting a family and even taking on a larger mortgage.
The problem is that life rarely stands still. A policy that suited your circumstances five years ago may not suit your situation today. We’ve seen many cases where people have:
- Increased debt
- Grown their family
- Changed jobs
- Started a business
- Paid off significant loans
- Separated / changed partners
Yet their insurance remains exactly the same as the day it was established. Regular reviews help ensure your cover continues to align with your changing needs and responsibilities.
5. Comparing policies instead of outcomes
When researching insurance, it’s easy to compare providers, premiums and policy features. Its diving deep into understanding and asking “Will this policy do what I need it to do?”
Do you gain a safety net?
- If you couldn’t work for six months, what would happen financially?
- If a major illness occurred, what costs would you need to be covered?
- If something happened to you, would your family have enough support?
Most people don’t intentionally make poor insurance decisions. Red flags arise because insurance can be complex and the important details aren’t always obvious.