Life Insurance: 5 Key Tips You Need to Know
For most people, life insurance can be a much-needed safety net if the unexpected occurs. If you have been considering buying cover but don’t know where to begin, the most sensible place to start is with the basics. Throughout this guide, we’ll examine some of the things you need to do when purchasing cover.
Tip #1: Know the kinds of life insurance options
Have a look at the main types of policies that are available before you do anything. This should give you a good idea of what would best suit you. There are two main types of policies to look at, term life insurance and whole life insurance.
Term Life Insurance provides cover for a set period of time, usually 5 to 50 years. If you die during this term, the policy will pay out a lump sum as normal. If you outlive the policy, it ceases, and you may have to purchase another policy if you still require cover. Because a payout is not guaranteed, the premiums are usually more affordable.
Whole life insurance, on the other hand, could cover you for the rest of your life. You simply have to continue paying your monthly premium in order to continue being covered. As the policy is ongoing, there is all but a guarantee of payout when you die, and as a result, premiums tend to be more expensive compared to term.
Tip #2: Premiums may increase with time
The older you get, the more risk you pose to insurance companies. That can also translate into paying a higher premium if you do the cover later in life.
For example, a 25-year-old who has no health problems or conditions would pay much less than a 45-year-old who has an underlying health condition. The reason from the insurer’s perspective is that the older applicant is considered more likely to claim based on the situation at hand.
With this in mind, it might make sense to buy cover in your 20s or 30s to lock in a cheaper premium. Policies like whole life and level term life insurance have fixed premiums. What this means is that your premiums will never change during the cover, even as you age.
Tip #3: Don’t over-insure/under-insure
A common mistake people tend to make is buying more cover than they may actually need. Doing so can result in unnecessarily higher premiums that could be spent elsewhere. While under-insuring could leave your family with minimal care in the event of your death.
In order to determine the correct amount, you should consider any financial commitments, like mortgage repayments, living costs, and outstanding debts. It’s often suggested to use part of your annual income (normally 10 to 15 times) as a starting point, although individual circumstances differ.
It may also be a good idea to sit down and think about your income and how much of it is spent supporting your dependents. In general, it’s worse to be under-insured than over-insured, but if budget is a concern, it’s better to find some kind of balance.
Tip #4: Read the fine print
It’s easy to skip the terms and conditions and all that legal jargon. But doing so can potentially cause issues down the line.
Insurance policies typically contain significant information regarding exclusions, limitations that can affect your cover. It may be the case that some causes of death are not covered, or perhaps there is a waiting period.
While it may be time-consuming, it’s better to be safe than sorry, so take the time to read your policy so you are aware of the details.
Tip #5: Be honest on your application
When you apply, your insurer will ask you about certain aspects of your health, such as your age, medical history, lifestyle, and any pre-existing conditions. You should be honest when answering these questions, if you are not, your policy may be void, or your loved ones may be refused a claim in the future.
If you are a smoker or have an existing illness, it may be tempting to leave this off the application form so that you can pay less for your premium. If your insurer does discover this at a later date, it could invalidate your policy, and your family will receive nothing when they are most in need.
By now, it should be clear that buying life insurance needs careful consideration and diligence. If you’re looking to buy protection, take advantage of any advice and resources available to you, as it could make all the difference in finding the best deal.
