by Russell Hutchinson
A lot of New Zealanders are sold their first insurance policy by their bank. It is good to have cover where none was before, and a big attraction for many of these clients was convenience: they usually filled in short forms and got cover without medical tests or exams.
But the trade-off is generally more limited cover and an opportunity to improve on it if they take the time to get good advice and submit to more extensive underwriting. Here are the main issues:
- Pricing. Not all bank cover is cheaper. In fact according to the Consumer magazine survey every single bank life cover offer could be bettered by a product sold by advisers. So much for the cost savings of direct. In some respects this is inevitable: pricing reflects how extensive underwriting is, and most bank cover is designed to be easy to apply for.
- Exclusions. Only ASB’s and Westpac’s cover is the equal of intermediated products – the others all include additional exclusions, most of which have long been erased from the products you sell. These extra exclusions include the ambiguous exclusion for participation in an unlawful act, which causes advisers to speculate on the treatment of a client killed while drink-driving, for example.
- Increasing Cover Options. Special events increase in cover options can allow clients to as much as double their sum insured without medical evidence based on common family, work, and financial events. Provided they, or you, remember to take advantage of the features. ASB is the only bank product to have a special events increase option as good as most advised products. Kiwibank’s is a runner up. Of course you can improve on both of them if you are very fussy about SEOs, but an honourable mention must be made of KiwiBank’s high maximum age to exercise the option – higher than many advised products, so check the exercise age limits on yours – they can cut out clients as young as age 50.
- Upgrade policy wordings. Five out of eight advised companies commit to upgrades in their policies. Only one out of five bank products do the same – that’s ASB again.
- More features: As insurers that distribute through advisers have had to continually fight to find a way to get your attention they have added many features that you may not find present in bank products – take the commitment to pay financial planning and legal costs for example.
That list is just life cover. Income protection and Trauma policies yield even sharper differences, of course.