Insurance is regarded by many business owners as somewhat of a ‘grudge’ purchase – a cost that most find necessary but ultimately irritating and expensive. Often the most common misconceptions about insurance are avoidable and can be put down to a lack of information available to business owners. Here’s six mistakes people make when considering their insurance.
1. Assuming insurance is out of reach
In 2014-15 there were 10.1 million adult Australians with private health insurance (57.1% of all people 18 years and over). Leaving 43% opting to go without the added cover of a health insurance policy – stating ‘insurance is too expensive’ as the main reason for doing so. Taken as a reflection of the average person’s view on insurance in general, the idea that insurance can be costly and not worth the money is all too common in Australia.
The high volume of Australians that think insurance in all its forms isn’t cost effective is staggering and doesn’t need to be so – in fact, many brokers offer their clients cash flow assistance by enabling their clients to pay in instalments. If cash flow is a prime consideration when your insurances fall due and dictate the quality or extent of cover you can afford, why not think of a funding option – cash flow problems are fixed and your insurance coverage will be high quality.
2. Relying on assumptions or out-dated figures
Too many times do we hear that people have overpaid on premium costs or underinsured themselves purely because they consulted out-dated figures. Organising insurance through a broker can help immensely as your broker will know the state of the market and what is available. They may even be able to help you benchmark your risk and in turn, find the most competitive and comprehensive deal.
Some factors that would affect your insurance premium from year to year are changes to your personal status (which can affect your travel insurance and disability insurance premiums), changes in your businesses’ activities or those of your commercial neighbours (i.e. if an explosives factory moves in next door!), or any expansion or diversification you have made, or intend to make in the future. For example, from a home insurance point-of-view, a premium in 2017 would be a marked increase on what it was in 2016 if the insured home had undergone an extension in the time that had elapsed since the last renewal. The sum insured would increase and the premium would have to increase accordingly. Good brokers suggest their clients always follow a practice of continuous disclosure, when something changes, no matter how minor it may seem, always ring your broker to ask for advice.
One thing that brokers notice very often is that new homeowner clients make contact and want to insure their home for its purchase price. Of course, the purchase price includes the land value and if there is a fire the land will still be there afterwards – yet premium has been paid to insure it! The advice of a good insurance broker can make all the difference. While statistics are not available, seasoned brokers believe that a significant number of Australian’s have over-insured their properties and are paying too much – and don’t even know it.
3. Shopping on price alone
Comparing insurance policies can be confusing, and when you’re running a business the last thing you need is confusing and conflicting information that makes the insurance decision more difficult than what it needs to be. The main goal for the average consumer when buying insurance is to get the highest level of cover for the lowest premium (price). What’s important, though, is that consumers don’t just choose the lowest premium straight off the bat. It’s important to do research into exactly what’s on offer for your money. As a general rule, the higher the premium, the less you’ll have to pay out in a time when you’re reliant on insurance to protect your wallet. Research conducted into which insurance cover to purchase has to be based on comparing apples to apples, and consumers must be comparing quotes based on the same coverage levels and scope of benefits. An insurance broker can do this for you and give you the most suitable options to extract maximum value based on both coverage and price.
4. Skimming over the details
Issues that may arise down the line in a period of insurance can often be avoided if you take the time to read and understand your Product Disclosure Statement (PDS). It’s the most important document you can receive during the insurance process and includes everything from definitions of ‘insurance jargon’ to the terms and conditions of your policy. Getting to grips with this information ensures that you’re informed and comfortable with what you’re buying. You can make sure that you’re aware of exactly what you are and aren’t covered for. Think of it as insuring yourself against unexpected surprises. You’ll thank yourself later. Of course, your broker can help step you through any content you might not feel that confident about understanding.
5. Setting your excess too low
The excess in an insurance policy is the amount you have to pay if you decide to make a claim on your policy. It’s a means for you to accept a small portion of the risk yourself – and often comes with the opportunity to pay a smaller premium if it’s set to a relatively high level. The thing to keep in mind when setting an excess is whether or not you can afford to pay a high excess in a claims situation – if so, there is an opportunity to lower your premium. For example, if you can afford to pay a $2,000 excess, then your premium would be considerably lower than if you opted to set your excess at say $200. This all depends on your personal situation, and whether you feel comfortable enough to pay a certain amount of money if an unexpected situation were to occur – reflecting on your own financial situation and consulting your insurance broker can help you make the right decision.
6. Assuming that insurance companies avoid paying claims
Assuming that insurance companies are automatically against paying anyone’s claims is wrong, when in fact the opposite is true. According to the Australian Financial Ombudsman, more than 97% of claims received by Australian insurers are paid. The rule of thumb is that if you have a legitimate claim where you know you’re covered by your policy – then you will be reimbursed for your loss. The sentiment amongst insurers is that if the client has paid for a policy and the claim falls well and truly into the guidelines of such a policy, then the claim will be paid. Don’t let this myth put you off getting some essential protection!