How long have you been with your current bank? Whether it’s been since you were a nipper or later in life, chances are you’re a long-standing customer.
So, when it comes to buying life insurance, trauma cover or mortgage protection, it’s not surprising that many people take the option offered by their bank. It’s quick and easy to do, so why not?
While getting insurance from the bank might seem like a convenient solution, in reality some bank policies aren’t all they’re cracked up to be.
Here are three important things to look out for if you’re considering taking out an insurance policy with your bank.
1. How hard is the claim criteria?
When it comes to insurance, your policy is only as good as its fine print. In particular, in regards to mortgage protection cover (which pays your mortgage repayments if you can’t work), some banks’ pay out criteria can be very stringent compared to mainstream insurers.
In the past, we’ve seen policies where the definition of ‘total disability’ is so hard to achieve that it’s unlikely that the cover would pay out in the event that the policy owner couldn’t work. If this were to be the case, it would be very difficult (and stressful) to make a claim.
The irony is that, if you can’t work and can’t access your mortgage protection cover, the very same bank that sold you the policy may soon be chasing you over late home loan payments. Imagine being in that situation, where the same institution who sold you the policy is the same institution that declines the claim, and is the same institution that forecloses on your family home as a result. Potential conflict of interest? We think so.
2. How do you know you’re getting the best available policy option?
Have you ever wondered if the banks have some kind of vested financial interest in the insurance products they sell? Some banks produce their own in house insurance policies, whereas other banks have tied relationships with a certain insurer. For example, ASB Bank sells Sovereign products, this is because Sovereign and ASB are both owned by the same parent company. However what is consistent between them all is that each bank will typically only offer their one preferred option. This means that going to the bank doesn’t give you an opportunity to compare the market in an informed way, to find out how your cover actually compares in both price and quality. Given the information above, is a bank insurance recommendation the best thing for you, or the best thing for them?
Fine print is everything, so we recommend engaging an independent adviser who has access to a wide range of insurers and knows the “pro’s and con’s” between them, and what the best outcome for you will be based on your individual circumstances. RMA advisers have access to research data that demonstrates the differences between policies, giving you the peace of mind that you are receiving objective advice.
3. What percentage of claims are paid out?
Any insurer worth their salt will be completely transparent about their claims statistics – that is, the number of claims they pay out versus the number they have received.
Many of the major insurance companies publish regular statistics on these and yet, despite our recent efforts, finding these statistics from the banks is very difficult. In fact, as independent advisers, we have not been able to obtain any.
Of course, this begs the question – if the banks aren’t transparent about how many claims are paid out, how likely is it that your claim will be? Moreover, who is there to help you as an advocate at claim time? Another reason why working with an independent adviser can make all the difference.
At the end of the day we believe that insurance products sold by some New Zealand banks offer poor cover and should be avoided. You deserve to know what you are paying premiums for and how your premium compares to the market. Using an independent adviser means you will be offered a choice of the best products on the market, suited to your specific needs.
