Last week ASIC pulled out its fines jar and told Virgin Money to put in $30,600 for misleading online and TV advertising.
Virgin Money had been advertising ‘no health or lifestyle questions’ for a life insurance product, but its application form contained questions about smoking habits.
It also advertised that ‘weight is not a factor that affects coverage’, however if you had a Body Mass Index over 40 Virgin wouldn’t insure you.
These fines are a flag for consumers considering direct insurance.
One of the biggest problems with direct insurance – the type that you see pushed on TV/radio/internet, by a call centre, or through mail outs by your credit card provider, is with the underwriting.
When you obtain an insurance product through an adviser all the underwriting is done upfront and some medical tests may be required.
In Virgin’s instance, they had limited underwriting, but the smoking and weight exclusions were there to eliminate applicants.
When you’re fully underwritten and medically tested, it means you know what to expect, you know what you’ve purchased, what you’re covered for and why it costs X amount of dollars.
Some direct insurers have a no underwriting model which hits when there’s a claim.
It appears great initially because it streamlines the process, appears cost effective and there’s no problem securing the insurance policy.
So you think you’re safely covered.
The problem arises if you buy a policy and have a pre-existing condition, without prior underwriting your claim may be denied.
Likewise, if you’ve purchased based on an emotive TV ad and missed some obscure condition in the fine print, you’re likely not covered.
Which reminds me of a colleague’s saying when it comes to direct insurance:
“You don’t want an insurance policy stipulating you have to be hit by a Double-Decker Bus at 5:00pm on a Wednesday at the corner of King and Queen Streets to be covered!”
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL/ACL 224543, www.mfg.com.au This information is general in nature and readers should seek professional advice specific to their circumstances. Think you need a lawyer for a superannuation claim? Think again!
