Insurance can be a complicated matter at the best of times, and this is particularly true when it comes to something as important as life insurance. Luckily, AdviceFirst advisers can help you avoid some of the common pitfalls and maximise the benefits for you and your family. Here, adviser Samantha Durning shares five things you should consider when choosing a life insurance policy.
Get insurance for every earner
Make sure that you consider including your partner when it comes to life insurance policies. It’s common for people in a relationship to only consider policies that cover the primary income earner, but if something happens to the other partner it can still have a serious impact.
“Relationships are partnerships and any life insurance policy needs to allow for the disruption to the dynamic that would occur with the loss of either side,” says Samantha. “For example, if the primary income earner needed to take time off to run the home after a tragedy, their financial potential would be severely disrupted.”
Avoid jumping on the opening offer
Despite the ease with which you are offered and can accept life insurance cover these days, always shop around in order to find the cover that best fits your individual situation.
“It’s tempting to take the simple solution offered by your bank or by clicking on a deal you see online but those options are rarely designed to cater to your specific needs. Comparing different policies means you can find the best price and the best range of benefits to suit you and your family’s needs,” says Samantha.
Make smart comparisons
Directly comparing different insurance quotes can be very useful, but also potentially misleading. Raw numbers can hide the complexities of different policies having ranges of benefits and features which you may or may not need.
“Basic cover might be cheaper in the short term, but also may fall short on actually offering you the required options in the event of a claim,” says Samantha. “For that reason, it’s always best to make sure you size up your potential policy options based on more than just the bottom line cost.”
Be aware of premium structure
A big part of considering life insurance is what happens before you claim; that is, paying the premiums. Samantha says different policies have different premium structures, and it’s vital to know how this will fit into your budget now and going forward.
“A level premium is one that remains at the same level even as you get older, meaning you pay the same amount for an agreed period. Stepped premiums start low, but increase gradually over time, meaning they can become an unaffordable expense. Know your financial limitations and plan accordingly.”
Keep policy ownership in mind
Lastly, Samantha says you should take some time to think about the ownership of your life insurance policy.
“The most common options are sole policy ownership and joint ownership. Sole ownership means that, in the event of your death, any funds are paid into your estate and distributed according to the law and the stipulations in your will. Joint ownership means another person—usually a partner—also has control, and they will be given direct access to the funds on your passing. The latter can bypass some legal hurdles, but be sure to seek advice on which option is best for you.”
For help choosing a new life insurance policy, or reviewing an existing one, contact your AdviceFirst adviser on 0800 438 238 or email letstalk@advicefirst.co.nz.
