Business

Don't leave your insurance to chance

There are significant risks involved in filling out an online form and letting the software make your insurance decisions
There are significant risks involved in filling out an online form and letting the software make your insurance decisions There are significant risks involved in filling out an online form and letting the software make your insurance decisions

IF you've ever done a grocery shop for delivery online, you may know the hazards of giving your choices away to someone else.

If they don’t have the brand you like, they substitute with the next best thing. But it doesn’t always work out.

There was a report this month in Which? magazine on things that can go wrong with online shopping.

One shopper received chicken flavour crisps instead of a fresh whole chicken. Another received a pack of Pampers nappies instead of sausage rolls.

The first I can see, just about. The second needs to be explained!

It’s the same principle, when you are making important decisions about your finances.

The Association of British Insurers (ABI) have constantly alerted the public to be wary of buying insurance online. There are significant risks involved in filling out an online form and letting the software make the decisions.

With online buying, you are not given the chance to express your preferences, and you do not have the opportunity to put across the nuances of your own particular situation.

This is particularly important when buying family protection insurances.

Critical illness insurance, for instance, is one where face to face professional advice can be crucial.

A critical illness policy can protect you and your family from financial hardship, if you have to give up work due to serious health problems.

However, successfully taking out a critical illness insurance policy depends on full disclosure, not only of your own state of health, but also possibly that of your parents, to establish any health history in the family.

Failure to disclose information about your parents’ health is termed ‘inadvertent non-disclosure’, and can complicate things, if you need to claim. Your father, for example, might have had a heart attack of which you were unaware.

Insurance companies understandably view you differently if there is a history of heart disease in the family. That is in their interests, but also in yours, because you need to set up an agreement where everybody is in the picture.

Another issue that can hardly be handled by the software is: how much insurance do you need?

It may be prudent to link this to your household income, and set up a policy that would cover a wage lost through illness, or even death.

One approach worth considering is to cover yourself for (at least) 20 times your net income. The insurance payout could be invested to give your family a return of 5 per cent per year.

This would mean that, if you have a net salary of £20,000, you could consider insuring yourself for £400,000.

You might also want to calculate your life cover so that it clears the mortgage for your family. If you currently have a mortgage loan outstanding, then you could consider tacking that on to your life cover as well.

The important thing is to talk it through, face to face or, as the Americans say, belly to belly with a professional, independent financial adviser, rather than be sold something online, with no human input and without professional advice.

:: Michael Kennedy is an independent financial adviser and pensions specialist, and can be contacted on 028 71886005.