Think twice before switching your life insurance

While it is not that difficult to find a cheaper version of anything in times of financial stress, you will probably find cheaper life insurance as well, but you should think twice before you switch your life cover.

Life insurance is an essential element of building a sound financial future and therefore policyholders should always know what their policies provide, Steve Piper, head of underwritten intermediary services at Hollard Life Solutions, says.

“The life insurance market is dynamic, with consumers motivated by many factors when deciding on whether to stay or switch their insurance policies. There may be many reasons for considering a switch, such as the possibility of lower premiums, better customer service and advisor advice experience, as well as offers of better products and benefits.“

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Long-term insurance business not expanding

At the moment, he says, we are seeing that while the size of the new business market in long-term insurance is not expanding, there is a significant amount of policy switching in the South African long-term insurance market. Industry insights show that on average more than 80% of new business written is from policyholders switching policy portfolios from their current insurer to another.

“Affordability and financial stability are among some of the key drivers for consumers switching their life insurance policies. Policyholders want to pay lower premiums, which are determined by factors such as age, health, gender, coverage amount, term length, occupation and hobbies.”

However, he warns, before making that giant leap to a new provider with a different product, policyholders should always consider their decision very carefully. You should ask yourself:

• Am I improving the quality of cover I currently have in place?
• What are the advantages for me and my family as a result of the switch?
• Will this switch fit in with my ability to remain financially stable?

Sometimes it is simply better to stay with your current insurer, Piper says. “If cost is the only reason for wanting to change, policyholders should speak to their insurers or financial advisors to see if the company is able to match or better a competitor’s offer.”

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If you do switch, choose the right fit

If you feel it is time to switch insurers, it is best to get professional advice from a broker or financial advisor about the available options, Piper says. “Make sure to sign off on a financial needs analysis prepared by an advisor outlining why a switch is a good option.

“It is also important to make sure that the switch improves the existing cover and meets your and your family’s needs.”

An advisor should be able to provide a detailed breakdown of the various cover options under consideration, including price, benefit structures, waiting periods, exclusions, new benefit options and the overall customer service experience, he says.

“It is important to get several quotes before making that switch. The comparisons must be based on the same level of cover and benefits – compare apples with apples. Three quotes from three different insurers are a minimum requirement and confirms the benefit differences between each quote as these may have an impact at the claims stage.”

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Research each company’s track record

Pike says while trusting the advisor is important, you should ensure that all proposals are supported by confirmed evidence, with the correct documentation. “With life cover, policyholders must be aware that they may be required to undergo updated medical examinations which may result in a change in benefits.”

It is also important to read the fine print carefully and ask those probing questions: Will the proposed new cover make it easier to claim? Do the new terms of cover, including possible exclusions, put you in a worse position than currently?

“Policyholders must check whether there are any cancellation fees or waiting periods for the new cover. The new insurer may also require an administration fee.”

When policyholders switch insurers, there are often misconceptions about what happens to funds contributed to an existing policy when switching, Pike says.

“For risk-only policies (life cover), there is no financial value paid upon cancellation. However, if the policy has a risk plus a value component, for example, life cover and an investment, the investment portion will be paid out to the policyholder on cancellation of the policy, or the funds may be transferred into an investment vehicle.”

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Once you found a new insurer, it is important to inform all the parties concerned, the existing insurer, the new insurer and the existing advisor. Put everything in writing to keep a record of the changes, Pike says.

“And, last, but not least, make sure that the new policy is active immediately and that there will be no gap in the cover.”