Group or Individual Insurance, which is best for you?

This month I thought I’d deliver on a promise made in an earlier article – to explain the differences between a “group” insurance policy and an “individual” one.

Most people are aware that you can add insurance policies to your superannuation scheme such as Life Insurance or Income Protection or Disability Insurance, etc. Generally a lot of people simply take the “default” settings for these policies if their adviser suggests it. And given the premiums come out of your super fund, the policies are cheap and it’s all very simple, it’s not surprising why people just opt for this easy option.

However, when you dig a little deeper you can find yourself asking some fairly serious questions about whether these are the right type of policies for you.

Generally speaking when you add an insurance policy to your superannuation scheme you are buying into a plan designed (and priced) for a group, not an individual. To make it more attractive and keep the prices down, the policies tend to be “trimmed down” to basics.

So with a group policy compared to an individual policy, you will often get:

  • less additional benefits beyond covering the basics
  • a longer list of exclusions (the things they won’t cover)
  • no fixed guaranteed benefit (you get what they determine should be paid to you)
  • “offsets” for income protection for example where they reduce what they pay you by allowing for other income you might be receiving
  • longer waiting periods
  • shorter benefit periods

A recent article examined the difference between a group income protection insurance policy and an individual one and found the annual premium differed from $400 for the group policy to $1200 for the individual one.

However when all of the above factors were taken into account, the actual price difference fell to $400 vs $700.

Now remember that group policies come with little or no advice. You must find out everything for yourself and understand clearly what you are and aren’t covered for, without much help from them. However if you do want advice from your industry funds, they will give it to you, but they will charge. In some cases that advice can cost thousands of dollars, which would wipe out that $300 premium price difference.

And when it comes time to make a claim, you are more or less on your own with group policies. You have to deal directly with the insurer or their middleman – the trustee, employer or fund administrator. You can end up having to pay additional advice fees, which again adds to your costs.

So what starts out looking cheap can often end up costing you a lot more.

Individual retail policies are different. Your advisor is part of the package you get when you take out the policy. He or she works with you to find the right policy for you that gives you the cover you need that’s appropriate for you and your individual needs. Your advisor helps you navigate the often complex waters of insurance to find the right solution for you, then at claim time, they are there for you too. They go into bat for you, to help you get your money and negotiate any issues with the insurer that might come up.

As in so many things, you get what you pay for. And when it comes to insurance, being thrown into a group policy with thousands of others and left to fend for yourself can end up being far more expensive than paying a little more at the start, but getting so much more when it comes time to make your claim.

For more information about the differences outlined in this article or individual advice on your needs, please feel free to contact me on (03) 9868 7500 or email damian.espinosa@investorsdirect.com.au


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