In my view, seeking advice is absolutely crucial and clients
should never contemplate buying insurance without speaking with an adviser. An
expert adviser who really knows their stuff will explain the different types of
insurance, calculate the appropriate amount of cover, recommend the most
suitable policy and suggest the best ownership structure. They will also be
there to review a client’s circumstances over time, and, perhaps most
importantly, they will lend a helping hand at claim time, working hard to
smooth the way and reduce stress for the client.
Clients who decide to go it alone without the help of an adviser
will almost always make poor choices and will generally purchase inferior,
inflexible (and often very expensive) products. The level of cover is usually
far below what they need, and sadly, should a claim become necessary, clients
without an adviser by their side often struggle through a mountain of
frustration and misery.
I am super passionate about the value of advice. Over the years
I’ve heard too many sad stories of clients who decided to go it alone, only to
later end up wishing they had sought help from an adviser. There is one
particular story that resonates most strongly in my mind and that is the story
of Allison and her late husband Bob. I met and helped Allison last year, and as
a stark reminder of the dangers clients face when going it alone I’d like to
share Allison and Bob’s story with you.
Bob and Allison (both 52 years of age) applied for Life
Insurance with a direct insurer over the phone back in late 2009 – at that time
they both took out $150,000 of cover, with Allison owning the policy. In August
2012, after having some routine medical tests Bob was sadly diagnosed with
serious bowel cancer. Bob underwent surgery after which doctors told him the
cancer had made its way into his lymph nodes. After a long recovery Bob
struggled to return to work; however, it soon became clear that he wouldn’t be
able to carry out his normal duties and he was forced to stop work altogether
in late 2013. A few months later Allison needed to quit her own job so that she
could care for Bob. Bob had no Trauma cover in place and no income protection
cover. Life became a very tough struggle.
By late May 2014, Bob’s condition seemed to have stabilised to a
degree, but faced with mounting financial stresses, Allison made a fateful call
to the direct insurer. On that call she cancelled both her Life cover and Bob’s
Life cover due to affordability concerns. By that time Bob’s cover had
increased to over $180,000. The operator who took Allison’s call was aware that
Bob had been very unwell with cancer and she made an effort to convince Allison
to retain the cover but Allison still cancelled. On that same phone call,
Allison was sold a joint $10,000 Funeral Insurance policy (only payable for
accidental death for the first 12 months). Six days later, Bob and Allison’s
Life cover was officially cancelled.
The very next day after the effective Life Insurance
cancellation date – the very next day - Bob’s health took a dramatic turn for
the worst and he was rushed to hospital. About a week later Bob was diagnosed
as being terminally ill, with cancer found all through his body. By early
November Bob had lost his battle, sadly passing away with only $10,000 of
insurance in place (the Funeral Insurance policy). A week after Bob passed
away, Allison lodged a claim against this funeral cover; however the claim was
denied. Because Bob had died within 12 months of the policy commencement (and
the cause of his death was not accident-related) the claim was invalid.
What I did to help
When I met Allison and she told me her story, the sadness of it all
really moved me. Allison asked me if there might be something I could do to
help her secure a claim payment and I decided I would try. I desperately wanted
to help. On a pro bono basis I kicked off a lengthy investigation of sorts,
looking into every aspect of the May 2014 policy cancellation. I constructed a
full timeline of what had taken place and I requested archived telephone
recordings of a number of calls that Allison had made to the direct insurer,
including that Monday afternoon cancellation call. I transcribed the call
recordings myself so that I could read and re-read exactly what had been said
and how the cancellation occurred.
Without getting into the nitty gritty I did discover that there
were a number of grey areas in the cancellation process – as well as some
potential flaws that gave me some hope that I might be able to secure a
retrospective claim. I consulted with some highly regarded insurance industry
and legal professionals who suggested there may be a case and I then sent a
detailed letter to the direct insurer which listed a number of critical points
for their consideration and asked that they consider paying Bob’s claim.
About a month later I received a letter from the direct insurer,
advising that they had considered my letter and would be willing to pay a
nominal amount. In follow-up discussions I had with the insurer I indicated
that I felt the amount offered was insufficient; however, they stated they
would not be offering any more.
I decided to roll the dice and I submitted a complaint to the
ombudsman. The next afternoon the direct insurer contacted me to let me know
they had reconsidered the points I’d raised in my letter and that they were now
able to increase the payment to almost 10 times as much as they had originally
The impact of advice
Allison was paid almost $100,000, and all things considered, I think this was a
fair outcome given the circumstances. I am very appreciative that the direct
insurer acknowledged the grey areas in this case and that they didn’t just dig
their heels in over the policy wording. I am also very thankful for their
considerate and respectful attention in all of their dealings with me.
As an adviser I am very proud that my hard work delivered a more
favourable outcome for Allison. The unfortunate reality of course is that
Allison’s first experience with a passionate and knowledgeable adviser came at
the wrong end of the process. Had Allison and Bob sought quality advice back in
2009 things would have been so very different in so many ways.
The cover they purchased in 2009 was more than 40 per cent more
expensive than what a retail policy through an adviser would have cost them.
Had they been guided by an adviser initially, I have no doubt
Bob and Allison would have applied for more Life cover than they did.
Bob was self-employed and so his Life policy could have been
structured tax effectively as a Term Life as Super policy (along with TPD cover
potentially). The direct insurer doesn’t offer this type of solution.
Bob and Allison actually had an SMSF in place and therefore if
cash flow had been a concern, the Life cover could have been structured within
their fund. The direct insurer doesn’t allow SMSF ownership.
I’m sure that Bob would have at least been offered an
opportunity to consider Trauma cover and Income Protection insurance had he and
Allison decided to sit down and chat with an adviser in 2009.
A retail policy would have allowed far more flexibility than
what Bob and Allison’s direct policy offered. When things became a struggle financially
it would have been far easier to make changes to Allison’s cover whilst leaving
Bob’s untouched if it were a retail policy. The direct policy had specific
rules that made it impossible to retain Bob’s cover only.
There are many more points I could note, but the last point I’ll
make is perhaps the most obvious one. With an adviser by their side Bob and
Allison would simply NOT have cancelled Bob’s Life cover. Doing so would have
been completely disregarded as an option – of that I am absolutely certain.
With an adviser by their side, Bob and Allison would have
received a terminal illness payment in June 2014. With money in their pockets,
Bob and Allison’s last five months together may have been different. A terminal
claim (handled by a caring adviser) would have allowed them to spend quality
time together, to spoil themselves, to enjoy what time they had left, and to
perhaps tick some items off Bob’s bucket list.
I wish so much that Bob and Allison had met an adviser before
they decided to call that direct insurer.
Advisers play a crucial role and they make a true difference in
the lives of ordinary Australians.
** Allison and Bob’s story (names, dates and
the amount of cover have been changed to protect client identity)
Source: Risk Adviser, Richard Monroe, 20
Sound Life & Superannuation Agencies Pty Ltd trading as Sound Life Financial Services is the Authorised Representatives of Synchron, AFS Licence No. 243313.
The information contained in this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.