Beware the risks of buying online as life insurance meets technology

WE’RE doing much more online these days and life insurance is no different, but specialists say people buying cover need to check they understand the cost and risks.

LIFE insurance bought online is the fastest-growing form of personal insurance protection, prompting warnings for consumers to ensure they know what they’re paying for.

New research by Roy Morgan found the number of life insurance policies purchased online last year — 349,000 — has doubled since 2012, while policies bought through financial planners, brokers, branches or over the phone were flat or falling.

Life insurance purchased through employers — such as within super funds — also increased strongly to 821,000 new policies, the research found.

Roy Morgan industry communications director Norman Morris said there was a major transformation in insurance as people moved away from traditional brokers and salespeople.

He said buying life insurance online was often riskier because of many consumers’ lack of knowledge. “When you think about how little people know about complex financial matters, the fact they are going to do it online has inherent risk.”

Certified financial planner Patrick Canion says it’s dangerous to rely on algorithms.

Certified financial planner Patrick Canion said getting life insurance without professional help should only be done by people who understood exactly what they needed, types of cover, policy conditions and tax implications.

“Some people think they have life insurance cover bought online but they only have accidental death cover,” he said. The chance of people dying in an accident was “staggeringly small, so you end up getting something that’s quite useless”.

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Mr Canion said many cheap online policies were “dumbed down” and simplified without full underwriting, which increased the chances of claims being rejected.

“Why would you trust such an important decision to an algorithm?” he said.

NobleOak’s Anthony Brown says online financial services have empowered people.

Insurer NobleOak’s chief executive officer, Anthony Brown, said a lack of upfront underwriting for some cheap online insurance policies meant that pre-existing medical conditions could make it unlikely that claims would be paid.

“We like products where you ask all those questions upfront and people can be confident there can be no surprises at claims time,” he said.

“There are a lot of online direct products that only ask a few questions upfront.”

Mr Brown said the online world had empowered people to take more control of their finances, with greater ability to learn about insurance types, compare products and work out how much cover they needed.

“Buying online makes a lot of sense if you do some of that work upfront,” he said.

“When it comes to taking the policy out, we still find people like calling us and talking to a real person over the phone.”

Mr Brown said ASIC’s moneysmart.gov.au was a good source of independent information about life insurance.

@keanemoney

Originally published as Beware the risks of buying online as life insurance meets technology