It pays to read the small print
HERE'S a neat trick for you. Would you like to know how to make an insurance policy pay out at the start?
Answer: read the small print.
This is just what happened to a schoolteacher in the US a few weeks ago, when she took out a policy with Florida-based Squaremouth Insurance. There, buried in the small print, was a line awarding $10,000 to the first customer to send them an email.
Squaremouth told the delighted lady they ran the competition to show why it's good to read the policy information – the small print. The schoolteacher, who had an interest in consumer economics, said she reads every contract she signs, but it doesn't always pay off so well!
Finding free cash buried in the small print may not happen to us, but the same principle applies. Understanding the terms and conditions of your life or critical illness insurance, and the fees and charges attached to any investments you make, is an important element of financial success.
Another example I'd like to mention relates to home insurance, admittedly not a personal finance product, but the principle of understanding terms and conditions is the same. Did you know that now, posting your holiday snaps each day on Facebook can jeopardise your home insurance cover, if you're burgled while you're away? Modern burglars don't just use crowbars – they make full use of Facebook, too. The small print requires that you take ‘reasonable care' not to attract crime, and when you think about it, advertising on the internet that you're away on hols is nearly as bad as leaving your windows open.
The Financial Ombudsman and the police have both issued repeated warnings about this. Insurers reply that, while it would be very unusual for them to refuse a claim over a few Facebook shots of your suntanned bod in Benidorm, it has happened: ‘it's rare but it's there'. Incidentally, the same applies if you post photos of a new home you're renovating or furnishing, but haven't occupied yet.
The point is that the advice of a properly qualified financial adviser is essential when considering any financial product, be it life insurance, critical illness insurance, funds investments, or pension saving. Let's look at each of them.
With life insurance, you need to know how much you need, or, if you have no dependents, whether you need it at all. If you do, then do you want a whole life policy that will offer a guaranteed payout to your family, or a term insurance, which covers you for a fixed term, perhaps until you have paid off your mortgage. If you're a couple, perhaps a joint life policy might be better than separate policies: it is a cheaper option which pays out to the surviving partner on the death of the first. Great, if you finally decide to throttle him – you've thought of it a thousand times.
Critical illness policies come in all the colours of the rainbow, and familiarity with the small print of the main policies is one of the many skills of that famous caped crusader, the full-time adviser.
Critical illness policies generally cover the main conditions of heart attack, stroke, cancer, MS and major surgery, but some include many more conditions too, and you need to know what you are and aren't covered for. Some policies also offer severity-based cover, so that you can still get a reduced payment for a mild heart attack, for example – helpful for paying for medical help at an early stage.
Funds investments are another minefield, with a myriad of products now available. The real challenge is to understand the fees and charges buried in the small print, and it's also crucial to check a fund's recent performance and find a top performer that will get your money working hard for you. To read the fees all you need is a magnifying glass, but to understand what they will mean, to do a deep check on charges and on performance is best done by a qualified adviser.
And then there's pension drawdown, which is complex and can be a nightmare. This is a brand new area of personal finance, which is just about to celebrate its fourth birthday. If you have passed your 55th birthday, and are now considering using a pension drawdown product to access some of your pension savings - watch your step. Industry regulators have highlighted that again, many investors acting without advice are being hit with hidden rip-off fees, or paying thousands in tax that could have been avoided.
Help in interpreting the ‘t's and c's' of any financial product is important. It even says so in the (financial) bible:
“The large print giveth, the small print ... taketh away.”
:: Michael Kennedy and Shaun Doherty are independent financial advisers and pensions specialists, and can be contacted on 028 71886005 . Further information on the Facebook page 'Kennedy Independent Financial Advice Ltd' or www.mkennedyfinancial.com