Cheap insurance policies? Be careful

Buying cheap insurance is often one of the biggest mistakes when looking to arrange an insurance plan for yourself. While the idea of saving money can be tempting, simply shopping around based on price has historically not gone well for a lot of people down this path.

With insurance, you often get what you pay for

Insurance can be a great thing, but it can also be highly problematic. You can spend years paying insurance premiums, but when you claim may only be when you have a major illness, or when you die – and in that case your entitled survivors such as your family make the claim.  In those unthinkable moments, comes the moment of truth as to how your insurance policy actually performs.

If insurance is very cheap, there might be a risk it might be that you are foregoing valuable cover.

If you have lousy insurance, you might spend years paying for insurance that never pays out

As picked up by a variety of TV shows, a lot of people who have substandard insurance policies might find themselves in a position where they spend years paying for an insurance that never pays out. It isn’t unheard of for people to be declined a claim, even if they died. Reasons might be that the policy wording and terms and conditions might exclude certain events.

For example, if a person’s weight was well above the average (e.g. a very high BMI), this might mean they could never get a payout, even if they had been paying for years. Or if their death was caused by a health issue they had before them signing up for the policy, even if they didn’t have to disclose it in order to apply for the insurance, they could be turned down on the basis it was a pre-existing condition.

Focus on quality, not price

With insurance it is important to understand the quality of the insurance policy and the insurer you will be dealing with. Don’t just consider the insurer’s financial strength rating. It helps to understand their policy wording, and what they pay out for, and what they don’t pay out for.

The policy wording and terms and conditions of the policy can give an indication as to what the insurer will pay for and will not pay for. Ideally it is more beneficial to have a policy that you can claim on more easily, this would minimise the likelihood of coming to find your issue is not severe enough to claim on for example.

Also bare in mind that different companies have different mindsets for claims payments. Some companies have a greater mindset of wanting to find ways to approve claims.

There are also other factors that cannot be considered in this short article.

If your budget is an issue, consider other angles of dealing with this

If you have a limited budget, consider other angles of dealing with this. For example, if you are insured for $500,000 and finding this very expensive, it might be worth reducing this to a slightly lower amount if you are more comfortable with that. It might mean being covered for a bit less dollar-wise, but this could be better than switching to a problematic insurance provider.

Get professional advice

For many reasons, people agree that it is better to get professional advice around insurance to ensure it is done correctly. You can speak to us and a professional and qualified insurance adviser can assist you. There is no additional upfront cost generally for having an insurance adviser make some recommendations in a lot of cases.

The adviser you will work with can also present you different prices and options from different major insurers in New Zealand.

This website is written as a general guide and is not personalised advice. It is not intended as personal financial advice,nor is it specific advice to your situation. The author has written this in good faith and disclaims any liability from any action or inaction from how you may use this website or the results it may or may not achieve. Government, bank, company, insurer and lending policies, as well as other policies, procedures, and information in this website are likely to also change from time to time, and rules and decisions and policies may be applied differently and/or on a case-by-case basis. These rules may also change from the approximate time this was written. You are encouraged to recheck if these matters are accurate and up to date. By reading and using this website, you agree to hold the author, associated entities and/or associates, harmless.