Using a Life Insurance Broker vs Buying Direct: Know Your Risk
Using a Life Insurance Broker vs Buying Direct: Know Your Risk
You might want to purchase life insurance direct from the insurer, through your bank branch, or through a life insurance broker. Choosing whether you buy direct or through a broker should depend on your personal preference and how much legwork you’re willing to put into finding the right policy. Before you make the decision carefully consider which option will protect you against underinsurance.
An insurance specialist can save you time and money while helping you understand the details of a policy. But, you don't have to use a broker to buy life insurance.
This article aims to explain why the do-it-yourself approach of buying life insurance directly might not be a substitute for getting advice and feeling confident in the purchase and budget, especially when it comes to determining how much coverage is enough.
Life insurance broker vs direct insurance
|General advice insurance broker||Purchasing directly from the insurer|
|Who it’s for|
|Generally, more suitable for persons requiring insights about the different life insurance products and need help understanding all the relevant insurance terms.||Usually preferred by people who know what they’re looking for in a life insurance product and which company they want to buy it from.|
|Broker goes through the full retail application with you, usually over the phone, and takes about 15 minutes to an hour.||Simple application process, generally quickly done over the phone, online or directly through your bank.|
|Life insurance brokers can shop around to help you find the best policy at the best rates. Better access to products, which they can compare from a variety of life insurance companies.||Limited to only purchasing their products and you might have to review and compare them yourself. Premiums might be more expensive because of limited underwriting.|
|More detailed and extensive underwriting, generally done at application time.||Minimum medical information required at application stage. Generally, you'll be underwritten at claim time, possibly increasing the chances of your benefit getting reduced or denied.|
|Cover is potentially more comprehensive when you fully disclose all relevant information upfront.||Might have more exclusions to overcome the risk of having little information about your health, occupation and lifestyle.|
|You choose the amount of over best suited to your needs and the premium you can afford.||Generally, limits the maximum cover amount you can purchase.|
|An insurance broker works for you and will usually assist you with the claims process, fighting for what you deserve.||You’ll usually have to rely on yourself or your family to handle the claims process, which can take a while.|
|When life changes|
|Life insurance brokers will typically review your cover at least once a year to help ensure your coverage is still adequate.||If your needs change, you’ll need to contact the insurance company yourself.|
|Most brokers will make themselves available whenever you have questions and is generally the preferred option for people wanting more support.||When you need help or have a question about your policy, you can usually contact the insurance company call centre.|
Why buy life insurance direct from the insurer?
Buying insurance directly, generally refers to purchasing coverage straight from the insurance provider, usually the life insurance company or a bank, without any financial advice or guidance.
Consulting with a life insurance specialist can take more time while buying direct is usually faster if you have a solid understanding of the right types of insurance to purchase. However, the insurance provider can provide you immediate access to information and support regarding the policies they sell.
There are usually far fewer questions about your health asked upfront, which could lead to immediate acceptance, although it might also result in more limitations and exclusions being placed on your policy to protect the insurer against the possible risk of providing you coverage.
Although buying directly can be quick and easy, there are factors that can make it a challenge, for example, complicated medical histories, various occupational types, and extensive financial obligations.
When it comes time to claim, buying directly could cost you more because your benefit amount could be reduced or denied due to the exclusions and limitations you didn’t see in the fine print of your policy documents.
Do you need a broker for life insurance?
Whether you need a broker depends on your personal preference, as well as your level of life insurance experience and knowledge. If you already know what you want and where to find it, purchasing directly from the insurer may be the way to go. However, you might need a life insurance broker if you're just starting out and know little about insurance or if you've undergone a significant life change and need help comparing a variety of policies.
Life insurance specialists generally have one objective, offering products to you that are in your best interest, because they usually don't have ties to a particular financial product and are not pressured by one company to meet sales goals.
The benefits of working with a life insurance broker
- Saves you time by doing all the legwork for you.
- They can shop around for the most competitive rates in the marketplace, comparing policies and providing you with quotes.
- Access to many different insurance products. Because the price is not always the most critical aspect of insurance, you might benefit from diversity.
- Their experience and competencies will guide you through the application process and explain complicated aspects of your policy.
- They act in accordance with the Corporate act and will provide you with appropriate advice.
- An insurance broker will warn you if their advice is based on incomplete or inaccurate information.
- It’s their job to stay up to date with the newest benefits and features available in the market.
- Life insurance brokers work for you. Although they usually represent multiple life insurance companies, they are not employed by these companies. They will also usually help manage the claim process.
Life insurance brokers in Australia are not created equal. Be wary of those that represent a single company and whose advice is likely linked to product sales when deciding between a life insurance broker vs direct.
Financial advice is designed with the intent of influencing your choice of insurance product. An insurance specialist can either provide personal financial advice, general financial advice or factual advice, depending on their competencies and licence.
Types of financial advice
A financial adviser offering personal advice, must hold an AFS license, and will generally provide you with specific recommendations that are tailored to your needs and circumstances.
What is scaled advice?
Scaled advice can be defined as personal advice that is limited in scope. All personal advice is scaled to some extent, because advisers must use their judgement and expertise to ensure the range of their advice meet their legal obligations, including being in the best interest of the client.
Brokers offering general advice should have an AFS licence and can provide you with relevant insurance insights, so you have all the information you need to make an informed and confident decision. However, they will not take your personal goals and situation into consideration.
General advice warning
Life insurance brokers offering general advice must have a general advice warning on their documentation and/or website, for example: “This information is general in nature and might not reflect your personal financial objectives, situation or needs. You should carefully consider an insurer’s product disclosure statement (PDS) before making any decisions to purchase a product”.
This type of broker only provides factual information and does not offer advice, either general or personal and does not consider your relevant circumstances. They do not need to obtain an AFS license to provide factual information.
By providing ComparingExpert with an initial quote request, you can review price on screen in seconds and compare features and benefits from leading life insurance companies side by side. When you apply, a life insurance specialist will contact you to follow up on your selection and provide you with more information regarding the types of cover available, so you can feel confident when making a decision.
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