What’s the difference between Group and Retail Insurance?
Which type of life insurance policy is best for you? Should you take a group scheme through your superannuation fund or employer, or take out an individual policy yourself? If you already have life insurance, are your existing arrangements best for your circumstances?
When applying for, or reviewing existing insurance arrangements, it is paramount to have an understanding of the differences between Group and Retail insurance policies.
What is Group Insurance?
A pooled insurance product offered by a super fund or employer to a group of people. The agreement is between one owner (the trustee of a super fund or an employer) and the insurer. Often, people will hold a default level of group cover via their industry superannuation fund.
Advantages
- Reasonably cheap premiums (although premium spreads have significantly narrowed in recent years)
- A person who may not be able to obtain individual cover, or have an exclusion or loading applied, are able to access a level of cover
- Application process generally very simple and straightforward
- Underwriting not normally required (up to automatic acceptance levels)
Disadvantages
- Variability of policy terms & conditions – Ts&Cs can be changed at any time upon agreement between the trustee / employer and the insurer and applies not just to new, but existing policy holders
- Comprehensiveness of policy is usually weaker as cover definitions are generally restrictive in nature
- Generally lower maximum sums insured
- Normally cover is unitised meaning cover will likely decrease as the life insured ages
- Typically only ‘Stepped’ type premium structure available (i.e. cheaper during initial years but increases substantially over time)
- Less flexibility with policy options (e.g. Income Protection contracts – restrictive waiting / benefit periods)
- Unable to appoint a servicing adviser (a servicing adviser can assist & support with the application process, policy queries, changes to cover, claims management)
What is Retail Insurance?
An individual insurance product between the life insured and the insurer. Policies are channeled via intermediaries such as financial advisors. The application process involves underwriting – an assessment of life insured risk profile, which involves a medical component (personal/family history, potential collection of bloods etc) and/or financial component (proof of income etc).
Advantages
- Policy terms are ‘locked’ (not subject to potential change) at time policy goes ‘In Force’.
- Comprehensive (more ‘generous’) policy terms
- Generally able to insure larger sums (maximums – life – unlimited / TPD – $5m / Trauma – $2m)
- Cover levels (benefits) are fixed (or can increased with CPI / other indexation method)
- Flexible premium structures (Stepped / Level) – to cater for short & long term insurance needs
- Flexible policy options (e.g. Income Protection contracts – more options available for waiting / benefit periods, Agreed/Indemnity cover, ownership etc)
- Able to appoint a servicing Advisor
Disadvantages
- Generally more expensive than group policies (but reflective of a better quality product)
- More detailed application process (can take 6-8 week to finalise)
- Underwriting (medical / financial) required
If you’d like to discuss you current situation or any points in this article further, please contact one of our Financial Specialists today. Alternatively, you can complete your details below and we’ll be in touch or give us a call on (03) 9835 8200.
