Insurance is designed to protect you from the financial consequences of an unfortunate event – but there are so many options, how do you approach it?
Here is our list of the 10 things to avoid when buying protection insurance.
Don’t buy it if you don’t need it Life insurance is designed to provide a payout to your family and loved ones at a time of loss. However, if you have no family or other dependents and no debts to clear, do you really need insurance? No point in being the richest person in the graveyard!
Don’t leave it until it’s too late There’s a good reason the TV adverts talk about ‘a 22-year-old non-smoker’. Life insurance is cheapest the younger you are, because you’re fitter and less likely to have health complications, which can make insurance expensive.
Don’t be fooled by glitzy offers Insurance can be offered at rock-bottom prices designed to lure you in. However, the policy may have a ‘reviewable premium’ and, after an ‘introductory period’ your monthly payment will quickly go up. This can be avoided! Look for a policy with a guaranteed premium.
Don’t buy more cover than you need There’s no fixed rule defining how much cover you need. Some people calculate their life cover as 20 times their annual salary, plus what remains to be paid on their mortgage and other debts. That will go a long way towards eliminating financial insecurity for the family. It really is horses for courses though, and a financial adviser will match your policy to your own particular needs.
Don’t forget to consider the various insurance types ‘Term’ insurance is very popular with mortgage holders, where the potential payout reduces year by year, and then expires when the mortgage is paid off. Or would you be better with the standard ‘whole of life’ insurance, that pays out when you die? The first is cheaper, as it may never have to pay out. The second is dearer because, alas, some day it definitely will.
Don’t forget your long-suffering spouse or partner You can take out a single policy that covers you alone, but for a few extra pounds a month you can take out a joint policy, which pays out to your spouse when you die. They remain covered so that the children continue to be protected, when they die.
Don’t forget that you may not die Your family stand a much greater chance of losing your income through a serious health setback, than through your death during your working life. Critical Illness insurance covers you against all the major illnesses and conditions, and many of the less likely ones. However, the policies can be complex.
Don’t forget to consider writing your insurance ‘in trust’. Writing your life insurance in trust is quite a simple process that can ensure your family’s money is paid out exactly as you wish. It also places your insurance payout outside your estate, which can have considerable tax advantages for your family as well.
Don’t forget to include the full facts in your application This is particularly important with critical illness insurance. Insurance companies may not check your family medical records when you apply, but they’re quick off the mark to check them when you claim. Could there be a health history in your family, that was never talked about? If, for instance, your father had had a mild heart attack, you need to mention that, otherwise it could cause problems if you make a claim, later on.
Don’t go it alone If you have problems with your car, you take it to a professional. And would you let even your favourite aunt cut your hair? We hope not! The same applies to the complicated business of finding the insurance policy that is right for you. The Association of British Insurers (ABI) recommends that everyone takes financial advice when shopping for and buying insurance.
Give us a call if you’d like to chat this through.
Ancojada Limited trading as Prosperitas Consult is not authorised or regulated to provide financial advice.
All financial advice is provided by other regulated businesses.