Without trying to sound like a politician, the answer to the above question is “yes… and…no”. It can “go faster” and serve its intended purpose and then disappear in a puff of smoke (like the recent claim example I will discuss below). An accelerated insurance product can also be more economical, but there are fish-hooks with such a policy.
First, what is Accelerated and Stand Alone?
Lump-sum paying insurance products such as Trauma and TPD (total & permanent disability) can be ‘bundled’ to the Life product. This means that
- If a claim is paid on an accelerated benefit, the claim amount will be deducted from the life cover of your policy.
- If a claim is paid on a standalone benefit, the payment will not reduce the life cover under the policy.
The benefit of doing this is that the monthly premium for the client is less for Accelerated than it is for a Stand Alone product.
For example, a client that I have become the servicing adviser for, recently had a heart attack. He had a policy with $106,000 for life and $106,000 for Trauma (Accelerated). Upon receipt of his successful claim, this client was paid out in full for his Trauma of $106,000. This now meant in effect that his life ‘portion’ was now $0.
(and) what does ‘buy-back‘ have to do with anything?
There are two types of buy-back;
- Buy the life back if it is used for the trauma
- Buy the trauma back to ‘reinstate’ it
Both of these are normally actioned (upon application with the insurer) at 12 months from the claim date. The Trauma reinstatement will obviously exclude the condition which was recently claimed for.
In the real-life example above, my client did not have either of these buy-back options. While this would have saved him and his wife money on the monthly premiums, he is now in a difficult position. The options would have done the following:
- After 12 months, the life buy back would allow them to have $106,000 in life insurance. Currently they have $0
- After 12 months, they could have had $106,000 for trauma on any new conditions (subject to criteria). They now have $0.
Due to having a heart attack, getting any new cover will be difficult for this client. The accelerated product went faster alright – he now has nothing!
The look on her face…
While I was in the hospital helping my client with his claim form, I was looking through their policy schedule and blurted out before I realised what I was saying, “your life insurance will become zero” – I’d wished I could have bitten back my words, however the truth was out. I will never forget the look of shock and immediate comprehension that I saw on my client’s wife’s face.
She immediately understood, with her husband lying on a hospital bed, that should something else happen to him, or if he has another attack, there will be nothing else coming from their insurance company – the coffers will be empty.
For the sake of saving a few $ a fortnight, they have potentially put themselves in a very tough and risky position for the future. I have a few options that I can present when I seem them soon, but I am starting from a tough position as their new adviser.
Those two tick boxes on the quoting application, when applying for personal insurance, can make the difference between a future financial safety-net and a future financial burden (or even financial ruin if he is the sole income provider for the family).
A tick-box can change everything. The financial advice that you recieve (and adhere to) can make all the difference. Choosing Accelerated versus a Stand Alone product may save some $, but know the risks – are you prepared to take that risk?
If you want to know more about this type of product, or you are concerned about your own policy and whether it properly covers your risks, drop me a line – I’d love the opportunity to chat and walk through it all with you.