Which type of life insurance policy is best for you? Should you take a group scheme through your superfund or employer, or take out an individual policy yourself? If you already have life insurance, are your existing arrangements best for your circumstances?
When considering your insurance arrangements, it is paramount to understand the differences between ‘Group’ and ‘Retail’ insurance products, which we have defined below, along with the advantages & disadvantages of each type of cover.
Group vs Retail Insurance
Group Insurance is a pooled insurance product offered by a superfund or employer to a group of people. The agreement is between one owner (the trustee of a superfund or an employer) and the insurer. Often, people will hold a default level of group cover via their industry superannuation fund.
Retail Insurance is an individual insurance product offered by an insurer to the life insured and policies are channeled via intermediaries such as financial advisers or comparison websites. The application process involves underwriting – an assessment of risk of the life to be insured, which involves a medical component (personal / family history, potential collection of bloods etc) and/or financial component (proof of income etc).
- Reasonably cheap premiums (but premium spreads have been narrowing in recent years)
- Persons who may not be able to obtain individual cover, or have an exclusion or loading applied, are able to access a level of cover
- Application process generally very simple and straightforward
- Underwriting not normally required (up to automatic acceptance levels).
- Variability of policy terms & conditions – T&Cs can be changed at any time upon agreement between the trustee / employer and the insurer and can apply to existing policy holders, not just new policy holders
- Strength of policy is usually weaker as cover definitions are less comprehensive
- Generally lower maximum sums insured
- Normally cover is unitised meaning cover will decrease as the life insured ages
- Typically only ‘Stepped’ type premium structure available (i.e. cheaper during initial years but increases substantially over time)
- Less flexibility with policy options (e.g. Income Protection contracts – restrictive waiting / benefit periods)
- Unable to appoint a servicing adviser (a servicing adviser can assist & support with the application process, policy queries, claims management).
- Policy terms are ‘locked’ (not subject to change) at time policy goes ‘In Force’
- Comprehensive (more ‘generous’) policy terms
- Generally able to insure larger sums (maximums – life – unlimited / TPD – $5m / Trauma – $2m)
- Cover levels (benefits) are fixed (or can increased with CPI / other indexation)
- Flexible premium structures (Stepped / Level) – to cater for short & long term insurance needs
- Flexible policy options (e.g. Income Protection contracts – more options available for waiting / benefit periods, Agreed / Indemnity cover etc)
- Able to appoint a servicing adviser.
- Generally more expensive than group policies (but reflective of a better quality product)
- More detailed application process (can take 4-6 week to finalise)
- Underwriting (medical / financial) potentially required.
The right mix of risk insurance is an important part of your overall financial plan.
Accru’s Wealth Management divisions can assist you to find the best overall insurance solution for your needs, including advising on whether a group Life Cover policy is right for you or whether you need to upgrade to retail Life Cover. Please contact your local Accru office for more.