6 of the Most Common Mistakes to Avoid When Buying Insurance

Insurance is regarded by many business owners as somewhat of a ‘grudge’ purchase – a cost that most find necessary but ultimately irritating and expensive. Often the most common misconceptions about insurance are avoidable and can be put down to a lack of information available to business owners. Here’s six mistakes people make when considering their insurance.


1. Assuming insurance is out of reach

According to the Australian Bureau of Statistics, in 2012 there were 9.7 million adult Australians with private health insurance (57% of the population aged 18+). Leaving 43% opting to go without the added cover of a health insurance policy – stating ‘insurance is too expensive’ as the main reason for doing so. Taken as a reflection of the average person’s view on insurance in general, the idea that insurance can be costly and not worth the money is all too common in Australia.

The high volume of Australians that think insurance isn’t cost effective is staggering, and doesn’t need to be so – in fact, many insurers offer financial assistance, and payment in instalments is commonplace. Premium Funding, the country’s leading insurance premium finance company, offers payment plans that mean insurance is readily available to people who don’t believe they are in a position to secure cover for their business, personal or travel needs. Insuring through a brokerage, rather than a general insurer, often comes with the added benefit of a Premium Funding option, and so opens up the opportunity for everyday Australians to access superior insurance covers – achieving a greater sense of security.

2. Relying on assumptions or outdated figures

Too many times do we hear that people have overpaid or underinsured themselves purely because they consulted outdated figures or relied on the assumption that last year’s premium will be the same this year. Organising insurance through a broker, or even just consulting a financial advisor, can greatly increase your chance of getting the best deal on your new insurance premium. Some factors that would affect your insurance premium from year to year are changes to your personal status (income, age, medical state, claims history), external factors such as the economic climate, and any changes to what is being insured. For example, from a home insurance point-of-view, a premium in 2016 would be a marked increase on what it was in 2015 if the insured home had undergone an extension in the time that had elapsed since the last renewal. This information wouldn’t be readily available to a buying customer, leading to mistakes being made, and ultimately ending in customers overpaying or under insuring. The advice of a qualified insurance professional is essential in making the right decision.

3. Shopping on price alone

Comparing insurance policies can be confusing, and when you’re running a business the last thing you need is confusing and conflicting information that makes the insurance decision more difficult than what it needs to be. The main goal for the average consumer when buying insurance is to get the highest level of cover for the lowest premium (price). What’s important, though, is that consumers don’t just choose the lowest premium straight off the bat. It’s important to do research into exactly what’s on offer for your money. As a general rule, the higher the premium, the less you’ll have to pay out in a time when you’re reliant on insurance to protect your wallet. Research conducted into which insurance cover to purchase has to be based on comparing apples to apples, and consumers must be comparing quotes based on the same coverage that they’ve had in the past.

4. Skimming over the details

Issues that may arise down the line in a period of insurance can often be avoided if you take the time to read and understand your Product Disclosure Statement (PDS). It’s the most important document you can receive during the insurance process, and includes everything from definitions of ‘insurance jargon’ to the terms and conditions of your policy. Getting to grips with this information ensures that you’re informed and comfortable with what you’re buying. You can make sure that you’re aware of exactly what you are and aren’t covered for. Think of it as insuring yourself against unexpected surprises. You’ll thank yourself later.

5. Setting your excess too low

The excess in an insurance policy is the amount you have to pay if you decide to make a claim on your policy. It’s a means for you to accept a small portion of the risk yourself – and often comes with the opportunity to pay a smaller premium if it’s set to a relatively high level. The thing to keep in mind when setting an excess is whether you can afford to pay a high excess in an insurance event – if so, then you could keep your premium low. For example, if you can afford to pay a $2000 excess, then your premium would be considerably lower than if you opted to set your excess to $500. This all depends on your personal situation, and whether you feel comfortable enough to pay a certain amount of money if an unexpected situation were to occur – reflecting on your own financial situation and consulting an insurance professional can help you make the right decision.

6. Assuming that insurance companies avoid paying claims

Assuming that insurance companies are automatically against paying anyone’s claims is wrong, when in fact the opposite is true. According to the Australian Financial Ombudsman, more than 97% of claims received by Australian insurers are paid. The rule of thumb is thus, if you have a legitimate claim, where you know you’re covered by your policy – then you will be reimbursed for any losses made. The sentiment amongst insurers is that if the client has paid for a policy and the claim falls well and truly into the guidelines of such a policy, then the claim will be paid. Don’t let this myth put you off getting some essential protection!

Sources

http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/E334D0A98272E4DCCA257B39000F2DCF
https://www.fos.org.au/the-circular-14-home/fos-news/general-insurance-code-of-practice-20112012/

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