Con busters #1: Comparative quotes – an Insider’s secrets
In the price sensitive markets of Short term and Life Insurance, everyone is bombarded by offers to do comparative quotes, bad-mouthing existing providers and so-called comparative quote websites. Getting a ‘re-quote’ is an important part of making sure your premium stays competitive, especially when they seem to escalate annually out of control. If you want to do this yourself, there are a couple of hints and tips you need to know.
The so-called comparative quote sites on the web are usually nothing more than a comparison between ‘white-labelled’ products all produced by the same insurance provider and called different things, and targeting different niche markets. You will note that they don’t say ‘competitive’ quotes. Yes the premiums will differ, but don’t fool yourself into thinking you’re getting real competitive quotes.
When you get a comparative quote from a company, ask for a benefit by benefit comparison. This applies to both Life assurance and Short term insurance. Good brokerages and advisors will be able to give you this.
When comparing short term quotes, skim your eye over the fine print – this is where you might get conned (it is likely to be a sin of omission rather than commission) specifically look for these:
- Different excesses – for anything.
- Car ‘tracker’ terms and conditions – for example ‘in good and current working order’. If it removed and chucked by the side of the road? Clearly – not working.
- Jewellery that is only covered if it in a safe when stolen.
- Inflated car prices hidden behind ‘retail price’. Get the exact price and check. Devalue it every 6 months.
- Assume no ‘bonus’, ‘payback’, ‘outbonus’ or whatever they’re calling it today. Favourite trick? Increasing premiums by 30% or more 3 years in… knowing you’ve got your eye on the prize.
- If you decide not to ‘claim’ and spoil your no-claim bonus, and they find out, you’ll lose your bonus anyway! Check for it in the small print.
When comparing life quotes:
- How do the premium patterns compare? Your advisor will be able to graphically illustrate the differences (age rated, level, level with increases) – if any. If you’ve chosen to use a call-centre – ask for the quote before you agree to it and graph the differences yourself. Believe me, a change in premium pattern, for exactly the same benefits can make a MASSIVE difference (up to 50%). This is the most common way unsuspecting clients are duped.
- Get a comparison of benefits. This isn’t quite as easy, you’re going to need an advisor that understands a number of different provider’s products. These are the questions to ask:
- How do you measure temporary and permanent disability? You’re going to be unpleasantly surprised how much it varies, and how much ‘subjectivity’ there still is.
- How many dread diseases do you cover? (It can range from around 60 to over 350).
- Are there any conditions explicitly not covered in ‘disability cover’ (some providers completely exclude mental conditions, despite the fact they make up about 30% of disability claims in South Africa.)?
- Remove all bonuses, integrations to loyalty programs etc. from the comparative quote. It should stand on its own feet, and bonuses just be a nice extra.
- With some exceptions, mixing investment and life cover isn’t a great idea. Be very sure you can keep to the terms and conditions to maximise the linked investment.
- What is the ‘term’ of the policy (is it for 20 years or life for example). This can bring down the premiums, but might leave you uninsured if, as many people do, you ‘trade up’ on your bond and have no cover after 20 years despite an outstanding balance.
- Are you going to lose bonuses, paybacks etc. Unless the reduced premium will make up for that loss quickly, it might be worth your while waiting, or reducing but not cancelling until you get paid out.
Investment platforms – these are a little more difficult to navigate, and you might need to get an advisor to help you.
- If you’re moving from an Insurance platform onto a LISP platform, check very carefully for penalties, especially for Retirement annuities (section 14) and endowments.
- Compare Total expense ratios of the funds recommended.
- Are you investing new funds on an insurance platform? Get full disclosure of upfront fees paid to the broker and check carefully for penalties (they will be there – really, rather use a LISP platform!)
- Is the advisor charging upfront and ongoing fees. In terms of regulations upfront fees can be as high as 3.5%. Be aware that in order to make up this fee you investment will have to grow 7% before it is back to the original amount. Unless considerable red-tape has to be negotiated (like preserving government retirement funds – where originals only are required which requires excessive travel) then a 0 or 1% upfront fee is more appropriate. The 1% ongoing fee should come with an annual service level agreement. If you don’t get the annual review and feedback you need, you are within your rights to cancel this charge or allocate it to another broker.
If you need any help decoding this, give me a shout HERE
Author Dawn Ridler