Insurance Loopholes You Need to Know About When Getting Insurance Quotes
Let’s face it, life insurance isn’t exactly the easiest thing to get a grasp on. And certainly the contracts seem sprinkled with loopholes and a host of restrictions that can trip us up. So let’s take a look at 5 insurance loopholes you should be looking out for before signing a contract.
1. Insurance Loopholes – Slimy Sales Tricks
While many brokers won’t sell you straight forward life insurance, they will try to sell you other limited variations such as a life insurance for your bond or travel insurance. The loophole here isn’t really in what they’re selling but rather the way they’re selling it.
Think about how telesales personnel sell the products on the phone, or face-to-face by a broker. It’s usually kind of an afterthought. We laymen don’t know much about insurance. Therefore we don’t know what we’re buying exactly – even after we’ve had it pitched to us.
Take bond life insurance: often people chat to their bank to apply for a bond. Then, at the last minute, a bank officer offers you a life insurance policy to cover the bond. You’re on the fence. You’re not really sure you need the cover or the additional expense. And that’s when the pitch starts.
People often feel they have to sign up for life insurance when taking out a bond. They think it’s a packaged deal. The banks may deny this but at the same time insist if you don’t yet have life insurance, you should really go for their offering.
But buyer beware: this product is usually inferior to individual life insurance policies that independent brokers offer. And that’s because, just like the mortgage, the coverage amount drops over time while the premiums remain the same.
2. Bank Insurance Products
Why not just say “no thanks” to the bank’s life insurance product? Well, they’ll make you sign a waiver to say they offered you the insurance and you declined. It’s a little heavy-handed, really.
The bank’s not going to encourage you to shop around. They’ll make it sound like you must buy their insurance and also make it difficult to transfer coverage if you change your bond along the way.
Credit card insurers tend to use similar tactics – you know, those telesales calls you get about insurance to pay off the car in the event of your death. The person on the other end of the phone is trained to have an answer for your every reason not to want the product.
3. Insurance Loopholes – BS of Balance
If you’re able to pay off your credit card balance every month, have you ever noticed a life insurance loophole on your credit card statement? You used to not have to pay a premium if you didn’t carry a balance on the card but nowadays you’re forced to pay the monthly premium whether there’s a balance or not.
What’s more, the credit card balance is only paid off if you die. If you become ill or disabled, such policies only pay the minimum repayment – usually a mere 2 or 3 percent of the balance.
4. Insurance Loopholes – Negative-Option Billing
Ever heard of negative-option billing? This is exercised by both mortgage life insurance and credit insurance to ensure your premiums are guaranteed monthly. So you’ll keep being charged unless you actually cancel the policy. The amounts over the years can seriously add up, so you need to be careful.
5. Insurance Loopholes – Exclusions
Banks tend to use their underhanded tactics to sell travel insurance too. It’s a case of you’re taking the trip anyway, so you’re going to need the insurance. Really?
The exclusions are what tend to trip people up though when it comes to this type of insurance. There’s a story of a guy who bought travel insurance from the bank and asked if he still qualified, even though he had a chronic heart condition. The bank said he did but they didn’t tell him that should he change his heart medication, which he did, that he’d no longer qualify.
While banks are good for having processes for handling complaints and offer an ombudsman service, they do tend to get more complaints than independent life insurance companies owing to the amount of people who simply don’t understand what they’re getting.
There’s another story of a woman who was faced with hundreds of thousands of Rand in medical bills after being in a skydiving accident on holiday. Her travel insurance policy didn’t cover accidents incurred due to extreme sports, which is typically called a “lifestyle exclusion.”
This exclusion exists in both life and travel insurance. What it means is the policy won’t pay out should the policyholder die under extreme circumstances like skydiving or bungee jumping, or while in a war zone. So read policies very carefully.
Also track your policies carefully. A lot of insurance policies expire when you reach 65 or 70 years of age but people of that age continue to be charged the premiums due to issues with computer systems.
6. Insurance Loopholes – Post-claim Underwriting
Banks can’t ever really know your health status unless you tell them and this can come back to bite you big time if you don’t.Do they ever check you our properly beforehand? They’re quick to tell you a policy of sorts but they don’t actually send the GP around to check up on you.
So here’s the core issue with post-claim underwriting: it happens when you’re sold a policy. You being paying premiums but the underwriting to find out if you actually qualify for coverage isn’t done until a claim is made.
This tend to leave policyholders with claims at some of the most inopportune moments – as their health status changes and old age sets in and disqualifies them from certain coverage at the time they may need it the most.
Even though the policyholder may die of a fatal illness has nothing to do with a pre-existing condition like diabetes or heart conditions, the insurance companies claim that if you leave anything off the form or answer anything incorrectly, or even make a minor error, the entire policy becomes null and void. You then might get your premiums back but rest assured they’re next to nothing compared to the coverage you were under the impression you were getting.
How to Avoid the Loopholes
Ask for more time to go through policies so that you avoid such pesky loopholes in life insurance. Don’t jump to take something out over the phone, especially if they’re pushing you for an immediate answer. Rather ask for all the information to be sent and ask for time to make up your mind. That’s a good time to check out other policies and see what they’re offering as well as what sort of language the policy uses.
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All info was correct at time of publishing