The value of advice

By now, you’ve probably seen or heard about the battle between late, great cricket legend Tony Greig’s wife, and his insurer, following the news his life insurance was unable to be paid after his death in January 2013. There has been a great deal of media coverage surrounding the proceedings of the case, with Tony’s wife speaking out to encourage people to understand their policies before it’s too late.

Here I highlight the importance of understanding a risk insurance policy and the value of sound, trustworthy financial advice.

Firstly, life, trauma and TPD insurance can be purchased in two ways:

1. A linked/bundled policy cover, or
2. A standalone policy

Linked/bundled life insurance policies

After looking into Tony Greig’s situation, it appears he had in force a bundled/linked life/trauma insurance policy. A bundled life insurance policy is a type of policy structure where any connected TPD insurance and trauma insurance is connected as one overall insurable policy. A person may have, for example, life insurance, TPD Insurance and trauma insurance insured for $500,000 each. However, a bundled policy limits the total claim value across all policies to the $500,000. In simpler terms, if you claim on your policy for trauma insurance and you are paid the full $500,000, it deducts the balance from your other policies and in this case, the life insurance would have no remaining coverage.

When the above scenario occurs, the opportunity to buy back the life insurance cover is possible in the case of a large majority of insurance policies. However, this must occur after 12 months. After one year, the life insurance can be reinstated to the $500,000 original cover. Essentially, a buyback to restore the original amount is made. Some companies include a buy-back option as standard while others offer buyback for an additional premium charge.

Without a proper understanding or the addition of a ‘life cover buy-back option’ or ‘double trauma option’, a reduction of life cover to nil can have an impact on the future financial wellbeing of a family as can be seen in the case of Tony Greig.

Standalone life insurance policies

A standalone life insurance policy separates the insurance components into separate (ie, standalone) segments. A claim on the trauma insurance does not impact the value of the life insurance. The cost of the standalone policy structure is higher, although not normally substantially higher than bundled life insurance.

In simple terms? If you claim on standalone trauma policy, the other life insurances are not affected by the payout. On the other hand, if you claim on a linked policy, the other insurances will be affected/reduced.

How do I know if I have a bundled or standalone life insurance policy?

This article doesn’t take into account your own personal situation, so you should check with your financial adviser regarding the details of your insurance policy, and they will be able to tell you straight away the details of your policy. Following the national coverage of Tony’s story, I have received several enquiries from clients in regards to their personal situation and the type of cover we have recommended for them. I have been able to reassure every single client who’s enquired that the policy they have in place will provide them with appropriate coverage should anything happen to them in the future. In each case, stand-alone insurance policies have been recommended, and it has again highlighted the importance of receiving sound financial advice that is tailored to a person’s individual situation. There is a purpose for both life and trauma insurance; trauma serves the purpose of funding the immediate effects of a traumatic condition, giving you time off work, allowing you to get the best treatment possible, and giving you and your family some peace of mind in servicing cash flow or debt. Linked policies do in some cases serve the benefit of being less expensive, but this varies depending on your personal situation.

So what can we take out of this situation?

The importance of understanding what is in the fine print of your policy and its structure is of vital importance, and you should always talk with your financial planner regarding any questions you might have, no matter how small. Great financial advice is invaluable for peace of mind. An independent financial adviser, separate from your financial institution (ie, bank) will mean you can receive advice that is in your best interests, and advice that is tailored to cover your individual needs. In my 25 years of experience, I have seen countless successful claims for clients who have been appropriately covered, and ultimately ensure the impact on their families has been minimised. I have noted an increase in consumers heading online to match and directly seek out insurance cover that might not take into account their personal situation and subsequently not fully meet their needs. It reminds me of the Google Dr scenario, where we jump onto the net to find the answers to our potentially complex medical issues. Would you prescribe yourself a medication for a disease that you have not sought appropriate medical advice on?

A situation such as Tony Greig, who was at the time unaware of the fine print of his policy, highlights the importance of obtaining and regularly reviewing appropriate cover to ensure it meets your personal and family circumstances, making the stresses of any potential future illness, trauma or sudden death just that bit easier.

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Graham Campbell is a principal and senior adviser at Complete Financial Balance