Feb 12 2013
Posted by Canstar Research on 23/12/2014
Life insurance is death cover which provides a lump sum payout of money on death or on diagnosis of a terminal illness that will end in death within 12 months. Direct life insurance is, as its name suggests, life insurance you can buy direct, either from insurance companies or financial institutions. There is no involvement by a financial planner, the cover is easy to apply for, requiring nil or minimal medical information and applications can be completed online, in the branch or over the phone.
Some companies allow you to add other benefits such as Total and Permanent Disablement, Trauma and Income Protection using the same process. Sounds too good to be true! These products were designed especially for people who really should have life insurance but can’t be bothered with the whole financial planner process. For instance, a new home buyer may decide to buy life insurance to protect the asset and ensure his family doesn’t suffer financially, should the worst happen. As such, direct life insurance fills a useful niche which is becoming increasingly more obvious as its popularity continues to grow. Despite being only a relatively new product in Australia, direct life insurance opens up this sector and makes life insurance more readily accessible to a much wider range of Australians.
With direct life insurance becoming more mainstream every day, how can you compare policies to see what’s right for you? CANSTAR has undertaken an exhaustive comparison of direct life insurance policies to help you make an informed choice. First of all we looked at products freely available to everyone i.e. products not restricted to membership of an organization. We then examined features and pricing for different profiles and level of cover, making our results more relevant for those making a short list of policies that may suit.
Why buy ‘off the shelf’ direct life insurance?
There are distinct advantages to buying a one-size-fits-all life insurance policy. In a nutshell, the benefits of direct life insurance are:
- It’s much simpler to apply for this type of policy
- Download the application form from the internet, or apply on the phone or at your bank or insurance company branch
- The questions are easy
- Minimal medical to no medical information required
- Fast answer – you know straight away if your application has been successful
- Immediate death cover – you are covered straight away, upon acceptance of your application
These products appeal to people who know what they want and like the idea of having a straight forward life insurance policy in place to protect their family and assets, should the worst happen unexpectedly. Direct life insurance is also a good quick-fix for someone who wants to put a policy into place straight away but plans to review their complete asset protection and investment strategy with a licensed financial planner a bit later on.
And the disadvantages?
Oddly enough, what makes direct life insurance so appealing is the very same thing than can prove a negative. Buying over the counter negates the need to see a financial planner who can assess your individual situation and advise on a product or course of action that you perhaps had not thought about. This can result in direct life insurance not necessarily being cheaper than a product that is more tailored towards your needs.
Because you are not consulting a planner and relying on his or her knowledge, you need to compensate and look carefully at exclusions in the policy before you sign up. Of particular importance are the definitions of preexisting medical conditions. Some direct life insurance policies reduce the amount of cover as you age. All have restrictions on risky lifestyles such as working on an ocean oil drilling rig and motor racing in your spare time.
A financial planner understands what is covered and what is not covered in all the different policies and can steer you towards the one that best meets your needs. This is the trade-off you make when buying direct so it’s really important to do your home work and make it your business to know what exactly you are signing up for.