Direct insurance offers many perceived benefits, including ease of application, quick acceptance, low cost and the opportunity for customers to “self service” by conducting their own insurance research. These benefits are resonating with customers as shown by the rapid growth of this product range – the number of direct life insurance products has increased from 109 in 2008 to 203 today, an increase of 86% in the last 4 years. Sales in 2011 alone were $279.2 million (Rice Warner Actuaries, Direct Life Insurance Report 2012, page 5).
This article will focus on direct insurance policies and the “tips and traps” of these plans including:
How do they compare to an insurance policy offered by an adviser?
What is direct insurance and what are the different types of policies offered?
Direct life insurance products are defined in this article as those products designed to be purchased directly – without using the services of an intermediary or an adviser. There is also likely to be no face –to-face interaction between the customer and a representative of the distributor or insurer.
The sales process for direct insurance policies is typically initiated trough a variety of means:
There are a number of different products available:
Advantages of direct insurance policies are:
No, or limited, underwriting: Rather than spend time collecting medical information from customers and assessing their individual health risks, direct insurance policies rely on a number of different techniques to minimise claims risks, to ensure they insure healthy people and that cover is offered without the burden of medical assessments. These techniques include:
The insured is provided with a level of cover without completing any health forms or engaging with a financial adviser. The products are simpler in design with shorter PDS’s. Customers can research their own choice of insurance products, at least in relation to price.
Limitations of direct insurance policies are:
It is important to review the policy paperwork received from the direct insurer to ensure that you are aware of the terms of the cover being offered. Be mindful of:
How does the insurance within a direct insurance policy compare with cover offered by an adviser?
The products offered by direct insurers are generally basic relative to other advised insurance on the market; however they do provide customers with simple cover with an easier application process for those that are healthy.
It is important to consider that, when compared to direct insurance policies, retail products offered by financial advisers:
The definitions and features with a policy offered by advisers are of higher quality with less exclusions providing a greater security and opportunity to claim. Furthermore, the level of cover recommended by an adviser will more likely meet your long term needs as it is tailored to your own individual circumstances.
Importantly, being underwritten at the time of application also provides a level of certainty of what you are covered for should a claim event occur.
For those customers concerned about adviser fees, it’s important to note that, while direct insurance does not involve payments to advisers, many are sold via distribution arrangements that involve the payment of commissions to the distributor or administrator of the product (Rice Warner Actuaries,, Direct Life Insurance Report 2012, page 11). This, coupled with high marketing costs and the risks of not individually underwriting each customer, is why direct insurance is often not cheaper than advised insurance products.
To ensure you are adequately protected with a quality product, it is important to review your existing insurance arrangements and determine whether these levels are sufficient to meet your long term needs, with the most appropriate features and benefits based on your personal circumstances. To discuss your own personal circumstances, please contact our office.