Buying life insurance? Look out for these 6 traps
Tue June 7th 2016
Buying life insurance? Look out for these traps.
Six personal insurance pitfalls
Life insurance is one of those things on everyone's to-do list. But, partly because no-one really wants to think about it, it tends to end up at the bottom.
Of course, nobody thinks they're going to die suddenly or lose their job, but if the worst does happen, it's better for your family to be protected. If you wait until you're terminally ill or laid off, you probably won't be able to get cover at all.
So if you're finally getting round to doing something about your life insurance, you're doing better than almost 43% of Kiwis. But if you don't want your hard work to go to waste, you need to get the right cover for your situation and avoid the mistakes many people make when buying insurance.
1. Procrastination doesn't pay
Putting off getting insurance is natural – filling out applications and paying for something so intangible is hardly the most satisfying way to spend your money or time. But procrastination can be expensive. If you keep putting it off as you age, you can find your options decrease – while your premiums increase.
2. Too little, too late
It's not fun to think about, but if you or your partner died, would the other one be able to live on your insurance payout? The last thing you need after the death of a loved one is financial strain – or worse, losing your home.
Many people are covered for a fairly low amount – $100 grand may sound like a lot, but it won't go far if you have a mortgage to pay off. Your cover should take care of the house and give the surviving partner some breathing room, in case they need to work part time, change jobs, or pay for extra childcare.
3. Don't forget disability
Life insurance is just one piece of the personal insurance puzzle. You're more likely to become sick or disabled than to die unexpectedly, so it's important to think about a range of scenarios (even if they're depressing).
Disability and income protection are designed to protect you and your family if you're unable to work. You can also get various add-ons like trauma cover and injury cover. When choosing cover, think about the mortgage again – will payments cover it? What about bills, food, and childcare costs?
4. Partner protection
In many families, the breadwinner or main household earner is the only one with life or disability cover. But neglecting to cover the other partner can be a big mistake. If they become sick or disabled, you may need extra cash to pay for a carer, time off work, or for childcare. The same applies if a stay at home parent or lower earning partner dies – circumstances will change, and insurance can ease some of the pressure.
5. Review and renew
Things change. Marriage, birth, buying a house, getting divorced. Make sure your insurance keeps up. If you don't keep an eye on your policies and update them as your situation changes, you could end up receiving less cover than you need, or paying for cover you don't need.
For example, if you're young, single and childless, you will need less cover than people with small children and big mortgages. Older people who have paid off the mortgage and have no children at home may need less.
6. Confusing comparisons
Choosing the right insurance isn't easy. If you don't know the ins and outs of insurance, it's easiest to just choose based on price, or stick with what your bank recommends. Price is important, but so are the details. It's important to get the right type and level of cover, so you're protected no matter what.
Talking to an insurance broker – like Cave Financial – can help. We're experts, so we understand the technical jargon and the different types of cover. We'll get to know you and your circumstances so you can get the personal insurance you need – and avoid making mistakes.
Need some help?
Drop us a line using the form below and we'll be in touch to talk through your insurance or financial needs.