Life Insurance Buying Mistakes
If you’re planning on making an exciting purchase like a new phone or gadget for the home, there’s a fair chance you’ll spend a few hours researching your options - wanting to know all the features and making sure you’re getting a good deal. There’s also a fair chance that you probably wouldn’t want to devote as much time to buying an online life insurance policy though.
Buying life insurance isn't always as straightforward as it may seem. If you don’t do your research properly, you could end up paying too much for a policy that doesn’t suit your needs. There are plenty of things to consider before signing on the dotted line.
Here are some of the common mistakes to avoid...
Don't buy the wrong type of cover
The first mistake many people make when buying life cover is choosing the wrong type of policy. This can lead to you spending more money for cover you may not need, or having too little cover in place.
The main types of life insurance are whole and term life cover. Both these types payout cash lump sum when you die however there are some differences.
Term life policies cover you for a set period of time, for example, 30 years. This type of policy usually offers lower premiums than whole life cover, however, the policy only pays out if you die within the policy term. If you survive your chosen policy term, the policy simply expires and you won't be able to claim a return on the premiums paid previously.
Term life insurance has 3 levels of cover:
Level term - both the policy payout and monthly premium cost is fixed throughout the term.
Decreasing term - Covers large payments like a mortgage. The death benefit of your policy decreases over time as you make repayments.
Increasing term - Designed to protect the value of the payout from inflation. In doing so the payout increases over time, however bear in mind that your premiums will also increase too to account for this.
Whole life policies, on the other hand, arguably offer greater protection because they pay out regardless of when you die. However, premiums tend to be more expensive because of this. Ultimately, it comes down to whether you want peace of mind for the future or cover the short-term.
TIP: Whole-of-life insurance is also known as life assurance by many insurers.
You can also get critical illness cover - while this does not cover you from death, it pays out a lump sum if you are diagnosed with a critical illness or injury which meets your chosen provider's specified definition and severity.
Don’t assume that life insurance is too expensive
There are plenty of low-cost life insurance options out there - so you might be surprised how inexpensive it is - in fact, for many people, it could cost you less than a single takeaway a month.
Don’t put off buying life insurance
When it comes to buying life insurance, the younger you are, the less expensive it will generally be. So, if you wait until later in life to apply for life cover, you might miss out on a lower premium. However, there is some good news. If you do decide to apply for life insurance at a later stage, you can still qualify for cheap rates by choosing the right type of policy.
For example, if you're looking for cheaper premiums, you may want to consider buying term insurance. If both you and your spouse are looking for cover, you may consider looking at joint life cover.
This type of cover protects two people under a single policy - however, it’s worth noting that if you take out a joint life policy on a ‘first death’ basis and one of the policyholders pass away during the policy term; the surviving policyholder would need to apply for cover again should they still need it.
Don’t just rely on life cover through your employer
If you have life cover through work, you can’t always assume that the cover you have is adequate. Death in service benefit could certainly go towards helping your family, however, it might not be enough to cover everything. It’s also worth noting that this cover will likely stop if you were to leave your company, so keep that in mind.
Don’t hide information from the insurer
Different life insurance companies each have their own guidelines for what can be underwritten. Some may be more lenient than others about particular health issues. Shopping around is the best way to make sure you’re getting a good deal.
When you apply for life insurance, you’ll be asked a variety of questions about your health and lifestyle. It's important to tell your insurer everything about your medical history. This includes details such as whether you've had cancer, heart problems, high blood pressure, diabetes, or other conditions.
The reason why it's so important to share all your medical history is because insurers use these details to determine your risk profile and on what basis the insurer may be able to cover you.
If you are not 100% open and honest with the answers to your questions on your insurance application, you may invalidate your policy and it could mean your loved ones cannot benefit from the policy in the event of a claim.
Don’t underinsure
Another mistake people often make is failing to buy enough life insurance cover. It's important to get an amount of cover that suits your needs. For instance, if you have young children, you'll probably want to ensure they're financially protected in case something happens to you.
If you have no financial dependents, then you may not require as much cover as someone who does. You also need to think about what would happen if you died without providing adequate cover for your partner or spouse.
To gain a better understanding of how much cover you need, ask yourself the following questions:
What is your household's monthly income and outgoings?
What's your annual income?
How much financial support does your family need?
Do you have financial obligations, such as a mortgage? Or any other unsecured loans or debts?
How much savings does your family have?
What will my lifestyle look like after retirement?
Among many things, the payout from a life insurance policy can help your family with costs such as:
Daily living expenses
Household bills
Repayments on a mortgage
Education and university fees
Funerals
Childcare support
If you're unsure on how much cover you need, speak to one of our consultants. They can help guide you in finding a policy that matches your personal circumstance and the needs of your loved ones. Learn more on how to apply for life cover with guidance.
Shop around for the best rate and policy
When shopping around for life insurance, you should compare quotes from multiple providers. Doing so allows you to find the cheapest rate possible. The best way to shop around is to contact several insurers and ask them for their quote. Then, compare these quotes side by side.
However, this doesn't always guarantee you the best rates as many companies work on commission. This means they earn money if you buy through them. In this case, the best route is to apply through a discount advisory broker like Cavendish Online. We don't work on commission, instead we charge a one-off fee for our services.
At Cavendish Online, we can help you find the best life insurance policy for you, as we won’t limit your search to just one company.
