3.3.5 Insurance – applying the four-stage model (2)
Apply Stages 3 and 4 of the financial planning model to insurance
Stage 3 is about acting to put the insurance plan into effect. This involves looking at the details of policies and shopping around for the best deal. There is quite a bit of going backwards and forwards during Stages 1–3. Some plans you try to put into action may not work, or the plans may turn out to be more expensive than you first thought, and so the plan will need to be remade.
As the UK’s insurance market is so developed, taking out most types of insurance is relatively easy. Insurance policies can be bought either directly from an insurance firm or through an intermediary (usually called a ‘broker’) who can select a policy from different firms. Insurance is also sold by third parties, such as shops that sell extended warranties on their goods and travel agents that sell holiday insurance.
Brokers, such as members of the British Insurance Brokers Association, deal with insurance such as home, motor and travel insurance as well as term life insurance (which is an insurance policy for a defined period). Increasingly, though, insurance is bought on the internet – particularly via the numerous price comparison websites.
Financial advisers are the intermediaries who can give advice on life insurance, complex health insurances, savings and investments and pensions.
In all cases, unless simply ‘executing’ a client’s instructions, the firm or intermediary is required to recommend a product that meets individual circumstances and needs. Generally, the more complicated the insurance, the more an intermediary can help you in assessing your situation and needs, recommending and explaining policies, and in assisting in the event of a claim.
Stage 4 is to ensure that you regularly review your financial planning decisions. This feeds into regularly assessing your need for insurance, and into the other stages too. You should always review your insurance needs when policies come up for renewal and when personal circumstances change (for example, when the composition of the household changes or when new assets are acquired).
A common failing in personal financial management is simply to renew with the same insurance provider rather than shop around for a new deal. Such inertia can cost you money, as the best deals are often offered only to new customers – not to existing ones.
As with any plan, you need to check periodically how things have worked out in the light of experience. This gives you the chance to remove ‘double insuring’ – to check that the same risk is not insured twice (for instance, with a travel and a home insurance policy), which would be unnecessary expenditure.
It is also important to remember that the financial planning process takes place inside the social and economic context. One feature of this context is that insurance is heavily marketed, with adverts for various insurance policies on television and in many other media, and with promises of cheaper quotes, often through market comparison websites. This reinforces the need to approach decisions about insurance in a methodical manner, such as through the four-stage financial planning process you’ve been looking at.