What you should know when buying personal risk insurance
Answer questions completely and honestlyWhen you apply for personal risk insurance the insurer will ask a number of questions about your health so that the insurer can assess the likelihood of you making a claim and setting the premium. You are obliged to answer these questions completely and honestly. If you don’t, the insurer is entitled to refuse a claim on the grounds of ‘non-disclosure’ and not return premiums.
Policy wordingThe policy wording is all-important in determining whether an insurance claim is paid. This is particularly true of living insurances, e.g. disability income and critical illness where you need to meet the disability definition or actually be diagnosed with one of the critical illnesses before a payment is made. You should either obtain the actual policy wording to compare policies and ensure that the chosen policy meets your needs or get advice from a financial adviser qualified to give advice on personal risk insurance to help you with policy wording.
Shop around and consider optionsYou should, of course, shop around to get the best deal when you decide to buy insurance. Different companies’ policy wording (see previous section) may be similar but you should also consider the financial strength of the insurer if it comes to making a claim.
You should consider what other benefits and insurance you have. Insurance provided through your employer is typically cheaper than individually arranged insurance and can generally be replaced by individual insurance when you leave your employer. (However, you should check as you may be left without insurance if, e.g., you have to leave your employer for health reasons.) If you have significant sick or other leave, a longer waiting period on a disability income policy will reduce the premium.
Financial strength ratingsAll licensed insurance companies must give you their financial strength rating before you apply for insurance or, if they don’t have a financial strength rating, the reason why (typically if they are small insurers). The financial strength rating will also be on the insurer’s internet site. This will give you an idea of the present financial strength of the insurer. If the financial strength rating is downgraded, the insurer must tell existing policyholders.
Changing insurersWhile you should always be considering the best deal on your insurance, there are some things you should be aware of if you consider changing insurer.
TaxThe following is an outline of the tax situation for premiums and payments. Ask the insurer or adviser on the tax treatment of premiums and payments for particular policies.