Are Premiums Everything When It Comes To Insurance?

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Insurance premiums – what else to think aboutIf you’re like me, you do your best to keep your insurance premiums down. But is it all about premiums? The answer is NO, NO, NO. And I’m not paid by the insurance industry to say that.

The Insurance & Savings Ombudsman investigates cases every week where ordinary Kiwis like you and I didn’t get what they expected from their insurance. So I’ve collated some reasons why you might want to consider more than just the premium when buying insurance:

Pre-existing conditions

Switching companies for health-related insurance is risky. That’s because you may not be covered for “pre-existing conditions”. A pre-existing condition is anything you have symptoms of, even if the illness hasn’t been diagnosed. If you’ve switched insurers in the meantime you may not be covered for a serious illness such as multiple sclerosis, cancer or heart disease that the former insurer would have covered.

As well as health insurance, other insurance policies this can apply to include mortgage or income protection, disability insurance, trauma/critical illness, pet and life insurance. Sometimes, it’s best to suck it up and pay the premium. If you want to save money, check to see if the existing company has a better deal to keep your business. That often works.

Budget versus standard cover

With home and contents insurance, most companies offer a good level of cover in their most popular policies but also have cheaper budget policies. They are not created equal.

In the case of home insurance, policies with names such as “Premier”, “Echelon” or even “Standard” will reinstate your home up to the sum insured. Their budget policies only pay out the market value. In the case of contents, most policies cover “accidental loss or damage” anywhere in New Zealand. Mostly, they replace items new for old. A budget contents policy is cheaper but may only cover you for specified risks such as fire and theft, may not cover your belongings out of the house, and will pay the current market value, not replacement.

Make sure you understand what you’re paying for. Otherwise, you may not be comparing like for like when making decisions based on premiums.

Valuables jewelleryValuables

If you own a lot of valuables such as jewellery or camera equipment, then it pays to shop around. At least one insurer doesn’t cover jewellery at all unless you pay an additional premium. Most have limits on individual items unless specified as well as the total amount of jewellery that can be claimed. Others don’t cover you if you take the jewellery off and don’t lock it away.

Third party liability

Does your home and contents policy include third party liability? If you smash an expensive vase in a shop or at a friend’s house, you’re liable to pay. It’s very important cover. What if you burned your landlord’s property down by accident? How would you pay? Not all policies include this cover, so make sure you’re buying one that does.

What’s the claims ethic of the company?

What is their rate of pay out? This is something we consider at Canstar when compiling our insurance ratings reports.

Be aware of credit ratings

Do you know what your insurer’s credit rating is? This is important, as the earthquakes in Christchurch showed. Insurer Western Pacific failed when $60m of claims were lodged when it only had $6m in the kitty. Most policyholders will eventually get around two thirds of their claims from reinsurance, but must rue the day they chose Western Pacific. Their insurer had a B rating, from Standard & Poor’s. But unlike a school result, a B signifies “weak financial security characteristics” rather than a half-decent mark.

At Canstar, we really mean it when we recommend that you read your insurance policy from cover to cover. It’s not that difficult and can highlight any deficiencies in cover that would result in a claim being turned down.

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