INSURANCE

INSURANCE By Steve Wright

Clients can’t do it themselves

Life Insurance, why clients can’t do it themselves and why they need you. By Steve Wright.

Many people seem to

think that, when it comes to life insurance (life, disability, medical), they can do it themselves. Even at a recent financial adviser industry event it was suggested to me that (when it comes to insurance) “you don’t need advice, you can do it all yourself!”

After all, the information needed is on the internet – right! (Well, wrong, actually. Much of the knowledge, information and understanding necessary to do a proper job, including policy wordings which many insurance providers do not make available on their websites, is not conveniently available on the internet.) Clearly this person did not understand the complexities involved in putting together and maintaining sufficient and efficient insurance.

In my view, "doing it yourself" is about as sensible as defending yourself in court – usually a very expensive option!

Do it yourself folly

Why is it folly to think you can do it yourself? This is a question which requires a good answer because it goes to the very reason for an insurance adviser’s existence. Most clients will not know the answer either, and, if you want to have many clients you will need to help them understand why they need you (and can’t do it themselves).

So here is my attempt at answering this most important question – in a few parts:

You can do it yourself but not if you want to do it properly.

Building a sufficient and efficient life insurance portfolio, protection package, whatever you choose to call it, requires two things: ➊ Accurately calculated levels of cover for all risks you are not prepared to take and fund yourself. ➋. At the lowest possible cost (which does

Clients can’t do it themselves

not mean “cheap”).

Getting this mix right takes a great deal of knowledge that most people simply do not possess (and more importantly, even understand they need). Insurance advisers – compliant ones at any rate – understand: ➤ The risks people face and how to properly quantify both the direct and indirect financial consequences those risks can bring – we call it a needs analysis. Human nature leads us to take mental short-cuts when making decisions. We are most likely to make decisions based on emotion and experience, not on careful objective evaluation and calculation. Insurance advisers are trained to make these evaluations and calculations. ➤ Why, health, occupations, financial matters, hobbies and pastimes may create challenges to getting insurance and how to find possible solutions to these roadblocks – not simply stop the process. This kind of information is not usually available to the general public. ➤ What the different types of insurance products do and don’t do. This information can be found if you look hard enough but only at a relatively basic level. What only an experienced adviser can do is figure out how best to combine the often numerous different products and policies required to achieve sufficient and efficient cover. The number of options, combinations and variations are staggering. ➤ Which provider’s product will be most appropriate and efficient. It will usually come as a surprise to most people that product provider selection is critical. It can mean the difference between a claim payment or not. Good advisers understand that it makes sense to get the best product you can, not necessarily the cheapest or most convenient. ➤ Why convenience (few questions at application time) usually means inferior cover (no cover for pre-existing conditions for instance). ➤ The insurance applicant’s legal duties

❝ We are most likely to make decisions based on emotion and experience, not on careful objective evaluation and calculation. ❞

of disclosure and how best to ensure full and proper disclosure of health, occupation, pastimes, financial matters and so on. Advisers can provide invaluable assistance in properly filling out the forms and coaching clients through the process.

You can do it yourself but only if you don’t care about the costs.

It’s not about the premium. You can compare some premiums online but that is relatively useless with many products because you can’t tell what value the premium gives. Doing it yourself to save a few bucks by focusing on paying the least could be the most expensive option and could cost millions lost in benefits you don’t qualify for at claim time – this is the significant cost!

A skilled adviser:

➤ Knows that paying a premium for something that may not work when you need it to is the most expensive option. ➤ Knows why some products cost more than others and whether or not that represents good value.

➤ Understands that insurance is not just an expense to be minimised: it is a valuable asset and quality always pays off. ➤ Understands how to combine particular products to take advantage of ancillary benefits and avoid duplication. ➤ Can advise on the most efficient premium structure having regard to your likely needs. ➤ Can advise on the most appropriate ownership structure – getting that wrong can cost big too.

You can do it yourself but who will handle your claim? Aside from the convenience of having someone to do all the running around when you are sick, a diligent adviser can be your advocate in times of dispute, which can mean the difference between a claim declined and a claim paid.

Premiums the same

But why would you want to do it yourself? After all the above, here is the kicker. It typically costs the same premium whether you do it yourself or go through an adviser.

Doing it yourself is very likely to lead to confusion, indecision and inaction. Since it is essentially free, why go through all the hassle and risk yourself?

Find a good, no, find a great adviser, one whom you trust and who knows what they are doing and then take the time to do the application properly (most good products have a built-in benefit upgrade feature and opportunities to increase cover without medical underwriting, so doing it once may be all you ever need).

Finally, relax, knowing your premium spend is not wasted and that you are properly covered should the unspeakable happen. ✚

Steve Wright has qualifications in law, economics, tax and financial planning and is general manager Product at Partners Life.