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Columns: Insurance
Struggling clients need advice
Clients struggling to pay their premiums need sound advice to help them weather the storm, writes Steve Wright.
BY STEVE WRIGHT
From time-to-time, clients fall on hard times and in tough times, like the pandemic, can have difficulty paying their premium. Times like this are when your good advice can be invaluable. So what can you do to help them?
As usual, each client’s specific situation and needs must be taken into account, but there may be several possible suggestions or recommendations. Here are some of my thoughts on the subject.
Make sure they come to you first
It is essential to keep reminding clients to talk to you if they are having trouble with any aspect of their life, disability or health insurance. Talk to you BEFORE they take any action. There is no shame in falling on hard times, but taking action without advice can be very costly.
Never cancel a policy without advice
The worst thing any client can do is to unilaterally cancel their policy. Cancelling any life, disability or health policy can be disastrous, especially if simply done due to temporary affordability challenges.
Aside from being completely exposed to the financial risk the policy was protecting them from, if the client’s health has deteriorated since they first took out their policy, they may not be able to simply start up new cover again.
A new policy will require underwriting and take their deteriorated health history into account, possibly meaning loadings and exclusions not present before. In the worst case, their health may result in them being uninsurable, no cover being offered, and leaving them unprotected – possibly permanently!
Premium holiday and policy suspension
Many Kiwi insurance companies include some very valuable and sometimes generous, premium holiday or policy suspension benefits (and sometimes both). If affordability is a short-term challenge caused by a specific event like redundancy, then clients can apply for a policy suspension or premium holiday if these are provided for on their policy.
Recent Covid-19 relief offered by insurance companies has seen many clients save their policies by taking advantage of premium holidays or policy suspensions on offer and, has brought the various insurance company offerings around holiday and suspension into sharp focus for advisers.
As usual, the policy wording needs careful examination, but a true premium “holiday” usually means you don’t have to pay premiums and cover (protection) stays in place. By contrast, a policy “suspension” usually means you don’t have to pay premiums, but you have no cover either (although you can typically get cover back at the end of the suspension period without underwriting if you commence paying premiums).
Premium holiday and policy suspension benefits are typically limited and can be “used up”, so careful consideration is necessary before taking advantage of them. They may be needed in the future!
Benefit changes
If affordability is a longer-term challenge, then benefit changes may be required, like removing optional benefits, or increasing the waiting period or shortening the payment term on income cover or mortgage repayment cover, for example.
Increasing excesses can also be useful in lowering health insurance premiums. Reductions in sums insured or removing benefits no longer needed might also be an option. The most suitable course of action will be driven by the client’s circumstances and needs.
As with all advice, clients must fully understand the consequences of “downsizing” cover, including the loss or reduction of potential claim benefits and how this might affect them. Of course, clients must also understand that getting back any benefits given up may require underwriting, with the consequent problems a deterioration in health might bring – no ability to get those benefits back!
Premium structure changes
Premium structures can be reviewed to see if there is a more appropriate premium structure for the immediate term. Changing from level premium to stepped, for example, may drop prices in the short term, but could cost clients in the long term. These implications must be understood by the client.
Switching providers to save premium
Switching providers just to save premium costs is full of potential risk. If the reduced premium is not guaranteed to remain lower (something I’ve never seen myself), or significant benefits are given up, the end result might simply be swapping a benefit-rich policy with one not as generous and soon paying the same or even more for it!
As with most things, you get what you pay for. Switching to another insurer and taking comparable products and benefits will probably not save premium over the long term. Switching insurers can be risky too.
For a start, clients have to go through the whole disclosure process and there is always risk of non-disclosure. In addition, if their health is no longer as good as it was when they first took out their current insurance, they may not get cover with a new insurer without new loadings or exclusions. The good news is, changes to benefits or options to reduce premium can usually also be done with the existing insurer and without the risks inherent in switching.
Which course of action is right for your client depends entirely on the client’s circumstances and their needs. Solutions other than those I’ve mentioned may be better. Ultimately though, good advice might be all that is needed to help clients hold on to their policy. Because after all, the life, disability and health insurance we have is a valuable asset we may not be able to get again if our health has deteriorated. ✚
Steve Wright has qualifications in Law, Economics, Tax and Financial Planning and is General Manager Professional Development at Partners Life.
This article is for information purposes only, its content is intended to be of a general nature, does not take into account your financial situation or goals, and is not a personalised financial adviser service. It is recommended you seek advice from a financial adviser which takes into account your individual circumstances before you acquire a financial product.
