Would you take financial advice from a computer?

Whilst many of you would answer no to this question, according to a report by Mintel (Financial Services – web aggregators) up to 60% of consumers in Britain will use a comparison website such as MoneySupermarket.com, Go Compare and Compare the Market to either research or buy a financial product!

Until recently these websites concentrated on products such as car and home insurance but now protection policies (life insurance, critical illness and income protection) have been added and this had significantly changed how many people chose to purchase these products.  Whilst there are plenty of headlines focusing on mis-advice in the financial services industry there is very little publicity surrounding the potential for customers to mis-buy financial insurance products using the internet.

So how can a computer get it wrong?  The following is a list of potential pitfalls to purchasing a financial protection product via the internet:-

  • Over-insuring – if you don’t know what level of life insurance you need, then you could end up taking out more cover than is required costing £100s of pounds over the term of the policy
  • Under-insuring –not taking out enough life insurance cover could leave your dependents unable to maintain their standard of living in the event of your death
  • The policy might not do what you think it will – for example you may not understand the small print and find that there are exclusions or restrictions to the cover
  • Cheap is not always best – a focus on price can mean that valuable policy features are not included such as children’s cover, waiver of premium and terminal illness cover.
  • The quoted price could go up – if you have suffered from ill-health in the past, are currently experiencing a health problem or there is a family history of illness you may find that the insurer you have selected on the comparison site is either unable to offer you cover at all or might charge you a higher premium once they have completed underwriting your application.
  • The cover may be inferior – If you are replacing existing cover you could find that the new policy is not as comprehensive as the old one unless you have access to the terms and conditions of both policies.
  • Choice of insurers may be restricted – comparison websites will compare quotes from a range of insurers but not all insurers on the market and will focus on those insurers with good on-line systems.  The best insurer for your unique needs, therefore, might not be considered.

The alternative to doing your own research and buying on-line is to use the services of a financial adviser.  Many people think that they will have to spend hours with an insurance salesman in their home trying to sell to them, or that they will pay considerably more if they use the services of an adviser.  Thankfully this is not the case – the financial  services industry is working hard to demonstrate the value of advice to customers.  The Financial Services Authorities’ forthcoming Retail Distribution Review (RDR) will help to improve the reputation of the financial services industry by increasing the professionalism and qualifications of advisers together with making charges for advice more transparent.   And if you don’t want an adviser to visit, a quick internet search will give you a list of telephone based advisers who can provide advice before recommending the best policy(ies) on the market to suit your particular protection needs.  The benefits of seeking advice from a qualified and experienced adviser include:-

  •  The right cover at the right price – an adviser will spend time understanding your unique personal circumstances and will then recommend the most appropriate type of policy, term and level of cover to suit your needs.
  • You will know what you are covered for and crucially what is not covered.  Advisers must ensure that they understand your unique requirements before recommending a product and must write to you outlining their recommendation. This will include detailing any exclusions or restrictions to your cover so that in the event of a claim there won’t be any nasty surprises.
  •  Avoid reductions in cover – If your adviser advises you to replace an existing policy, s/he must ensure that they check that the cover on the new policy is at least as good as the old one.  For example if the policy is a critical illness policy, s/he will ensure that the conditions covered by the new policy are the same as or better than your original one.
  •  Get further advice when you need it – your adviser will be there not only when you take out your policy but also should you need to make changes to the cover in future for example should you move home, have more children or change jobs
  • Save time  – applying for life insurance can be time consuming as you need to provide your complete medical history, your family medical history along with details of your occupation, sports and pastimes.  If you use the services of an adviser they will help you with the paperwork both at application stage and throughout the underwriting process saving you valuable time.
  •  Whole of market advice means that your adviser can research the protection insurance market to find the best policy to suit not only your budget but your specific requirements.
  •  Underwriting help – if you have a pre-existing medical condition such as asthma, high blood pressure (hypertension) or diabetes or if you have suffered from a condition in the past, an experienced adviser will have an understanding of which insurer is most likely to accept your cover.
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