Take care if changing insurance policies.

17121703798 c3be57bae8 b-944Recently I had dinner with a neighbour who I regarded as a savvy business owner. During dinner, he proudly proclaimed he had switched his medical insurance from company A, who he had been with for 15 years, to company B, as he was saving $150/m in costs.

He said the lovely young insurance adviser from the new medical provider company was super helpful and pointed out the massive saving and made it really easy to switch company. My neighbour was also complaining that his long-standing investment adviser who had sold him the original medical insurance policy had recommended he not switch. However, my neighbour was fixated on the $150 saving per month as that is $150 that could now be spent on something far more enjoyable than insurance payments - so he made the switch.

The next day, I rang my neighbour and offered to give him an independent opinion on the new insurance policy he had just switched to. Within 10 minutes I established:

The new policy excluded all future back issues and right knee issues - these are called pre-existing conditions. The new insurer was excluding these as these are the areas where statistically there is a good chance of a future claim being made.

The new policy was definitely cheaper for the first year, but averaged out over the next 10 years, it would end up being 12% more expensive.

The new insurer had a lower credit rating than the previous one.
The claims excess selected on the new cover was higher than the low excess on the existing cover so this was a key reason for the lower price.

After a discussion with my neighbour and a bit of ego swallowing on his behalf, he agreed to reinstate his original insurance and cancelled the new cover. Fortunately, no irreparable harm was caused as the cancellation of the new policy was within the ‘free look’ period and more fortunately, the long-standing investment adviser had refused to let his client cancel the original policy until the 1 month free look period had expired.