Insurance is not a simple product. With so many options out there, how do you know you are making the right choice? We have listed below the five most common mistakes people make when purchasing insurance.
1. Only Considering Price
Whilst price can be an important factor when purchasing insurance, it is certainly not the only thing you should be considering. Other factors you should be taking note of are:
- The financial stability of the insurer and likelihood of a claim being paid
- What the company’s policy is on ‘grey’ areas and their dispute handling process?
- Quality of policy wording and the limits of the cover
- What type of built in benefits are included?
- Who owns the policy?
- Are you entitled to future benefit increases without having to go through medical underwriting again?
- For income protection, is your potential benefit agreed in advance or do you need to be financially assessed when you go on claim?
- Full and partial benefit payment options and also offsets e.g. ACC
As always, there will be a balance between the quality of cover and price. But to make sure you are not committing to an inferior product, it is best to have an adviser look at what products are available and then match them to your needs. Which leads to mistake number 2…
2. Buying Insurance Online Without Advice
The process of buying insurance online does carry appeal as you do not need to take much time out of your schedule to set up cover and you can complete a quick and simple application online. However, it is important to be aware that some providers are offering a quick online process which does not involve a proper assessment at the time of application, rather, they undertake an assessment at the time of claim.
By comparison, an adviser will most typically take you through the process of assessment at the time you first apply for cover, meaning that you have increased certainty around claim time rather than having your claim denied because of non-disclosure, exclusions or unfair clauses in inferior products – this is important when you are really counting on an insurance pay-out.
3. Not Considering How Much Cover You Or Your Family Really Need
We often find that people underestimate how much cover they really need and it is not until they have sat down and gone through an advice process that they get a real picture of their needs. Some of the questions we ask them to think about include:
- Do you want your mortgage to be repaid if you pass away unexpectedly?
- Will you need money to cover funeral costs?
- Will your spouse need money to allow them time away from work to look after the children and grieve if you passed away?
- If you got sick and couldn’t work, how long would your savings last? Could you keep up your mortgage repayments?
- If you suffered health problems would you be happy to go on the public wait list for treatment?
The right insurance plan would have enough cover for all of the above, so it is up to you and your adviser to work out a balance between what cover you would like to have in place and what you can realistically afford.
4. Not Considering Level Premium Options
As you get older, the risk to insurers of you making a claim gets higher – hence why insurance costs more as you age. We have found that as premiums rise with age, there is an increased chance of cancellation of cover. This can be a catch-22 because as you get older the chance of you making a claim on the cover you have had in place for all that time is higher.
Did you know you can buy life insurance with level premiums? Having a level premium means the premium is averaged over the lifetime of the policy, which helps with long term affordability. Ask your adviser about the benefits and advantages of a level premium option.
5. Not Reviewing Your Cover Regularly
Typically the level of cover you need over your lifetime will not remain the same. We recommend to our clients to review their cover on an annual basis and every time they go through a significant life event e.g. taking on a mortgage or having a baby.
By regularly reviewing your insurance cover you can assess if your cover amount would still meet your needs if you had to claim, potentially save yourself money and it gives you the opportunity to ask your adviser if there are any new products available that you could benefit from (however, a good adviser should be making you aware of these before you have to ask!)
If you have any questions or comments about any of the points we have raised in this article, please feel free to contact us.