Noel Stevens was dying when CommInsure rejected his insurance claim. The NSW District Court ruled the insurer was right to turn down the claim.
Mr Stevens passed away, but not before taking Commonwealth Financial Planning to court as he believed he had been given bad insurance advice. The court agreed.
Commonwealth Financial Planning (CFP) appealed the ruling and recently lost when defended by Noel Stevens’ daughter (CFP v Couper). The evidence in this case showed it’s possible to receive insurance advice that leaves you uninsured, where you were previously covered.
This client had no idea his insurance advice was poor. The CFP advisor didn’t know he’d given the wrong advice. In fact, the advisor followed a process you could find in any bank across Australia.
When your advisor is none the wiser, how can you check you have received proper advice?
Here are 13 signs you are probably getting bad insurance advice:
1. Your advisor doesn’t ask specific questions about your health and lifestyle
These questions should precede any advice or application.
If your advisor isn’t asking about your health, they’re not anticipating additional costs or exclusions due to your particular medical history. This is often a sign your advisor is focusing on getting you to sign on the dotted line.
You should know all likely limitations on your cover before you are asked to make a decision. This lack of investigation was a criticism the court made in CFP v Couper. It is a common practice across the industry, particularly in banks.
If your advisor simply asks you to ‘rate’ your health, with no follow up questions, I would head for the door.
2. You can’t see a clear benefit in changing products
If you already have insurance and you are given advice to change, make sure your advisor clearly spells out the benefits.
Is a small cost saving a good reason?
Unless you are really struggling to meet your expenses, a small decrease of say $50 p.a. is not always a good reason to change.
During the first 3 years of your new policy, insurance companies can avoid paying you a claim if you failed to tell them something that (1) led to the reason for the claim and (2) would have caused them to avoid the policy if they had known about the issue.
Your omission has to be non-fraudulent, but it’s common for people to accidentally leave information out of an insurance application and you don’t want to spend your last few months fighting for your payout.
If you have held insurance for over 3 years, you will reset this period with new insurance.
CFP v Couper showed that Noel Stevens left information about alcohol consumption out of his application. His alcoholism led directly to his illness soon after. While it is unclear if he did this on purpose, one thing was not contested: Mr Stevens wasn’t properly warned about the dangers of giving false information (see next point).
3. Your advisor didn’t explain what can happen if you omit facts from your application
If you lie or leave out information on your insurance application, and that information is relevant to a future claim, you may find yourself uninsured.
A good advisor will make this very clear early in your discussions. They will give you verbal warnings, incase you miss the fine print.
4. Your Statement of Advice has no alternative strategies
If your advisor can’t show you what other products they considered, then perhaps they didn’t look at all the options available to you.
Your advisor must show a comparison of your current insurance with the new policy they are recommending. In addition, you should make sure they have considered all products available to you, including insurance that is available to you through your industry super.
It is common for financial advisors belonging to a bank or insurer not to consider all the options available to you (see Sign 5).
Over 80% of financial planners in Australia are aligned with a major financial institution, so check your advisor’s Financial Services Guide (it is compulsory your advisor provides this document at the start of your discussions).
5. Your advisor recommends ‘in-house’ products
The main issue identified in CFP v Couper was that the advisor failed to consider any other alternative other than moving his client from Westpac to CommInsure.
The advisor did not consider leaving the client where they were, which would have been better.
In this case, the advisor thought he had to recommend his banks products at all times.
6. The cost analysis is focused on the first year
The cost of your insurance this year is unlikely to be the same next year. Some insurance can double in cost in only a few years.
The cost of different insurer’s products can change differently over time. The cheapest insurance today may be the most expensive within a few years.
Your advisor should explain all these considerations to you.
In addition, there are ways to structure your insurance so that the cost doesn’t increase. However, these ‘level’ insurance premiums start out more expensive and so many advisors will not discuss them with clients. They do not suit everyone, but level premiums can save you thousands of dollars over the long term.
The bottom line: your advisor should be presenting the alternatives. If they are not talking to you about the costs of your insurance beyond the first year, this is a sign your advisor is putting their own short-term interests ahead of your long-term needs.
Click here to read Part 2 of 13 Signs You’re Getting Bad Insurance Advice.
Contact me if you have questions or need advice.