Direct Life Insurance, not so cheap!

Companies such as Real Insurance, Choosi, and most recently, Coles Insurance, all claim to be the cheapest and easiest to apply. Coles even has a “Price Beat Guarantee” stamp on their Life insurance so it must be the cheapest right? Wrong.

Things to consider when choosing Direct Life Insurance Policy (e.g. Coles) vs Retail Insurance Policies (Asteron):

1. Lets look at the price of these policies compared to a normal retail policy which can be offered through an insurance adviser. I am 30 years old, non-smoker and want $1MIL Life cover. Coles Life insurance will cost me $66.93 per month which includes their 20% discount if I am a frequent flyer member and Suncorp will cost me $81.98 per month for the same cover. If I apply with Suncorp I get a $50 gift card and 10% back on my premium every 3 years. When I compare this to a retail insurance policy with Asteron, $1MIL of Life cover will only cost me $45.87 per month. This is a premium saving of over 45% compared to Coles and a 70% premium saving compared to Suncorp, even though Suncorp owns Asteron. Even with Suncorp’s 10% back every 3 years I will be around $350 p.a. better off with Asteron.
2. All of the direct insurance companies are very limited as to who can own the policy and in most situations the policy must be owned by the life insured/self owned. The issue with this is that the premium then needs to be paid in after tax dollars out of the personal account and the premium is not tax deductible. This is opposed to retail insurance policies where I can own the policy through a Self Managed Super Fund (SMSF) or get any other superannuation fund I have (e.g. Colonial First State, MLC, Sunsuper etc.) to pay for the premium. The premium then does not affect my personal cash flow, is funded by existing super fund account balance and/or employer contributions and the premium is a tax deduction to my super fund.
3. Applying for cover sounds so easy with direct insurers? Good marketing is the key as you normally only require a short form application which can be done over the phone or online. The maximum cover you can normally apply for is $1.5MIL with no blood tests or medicals. The reality with retail insurance policies is that you can apply for up to $2.5MIL with no blood tests or medicals if you are under age 45. The application can also be done over the phone with the insurance adviser for convenience. There is also no limit with the level of cover you can apply for with retail insurance. I myself have $2.3MIL Life cover as I have two young children, my wife is a full time mum and we have a mortgage. My premium is also funded by my Superannuation Fund. On this basis a direct insurance company would not meet my needs.
4. Finally and most importantly is the claims management. Who will handle the claim for your spouse or your estate if you pass away? I’m sure the 16 year old check out boy at Coles won’t provide any assistance. Having an insurance adviser who provides a claims management service will ensure your claim is handled efficiently and professionally with the insurance company directly on your behalf which saves a lot of time and stress for the dependent family members.