If you are about taking out Life Insurance in the New Year you will be keen to sign up to the right policy. But getting it right is no mean feat, especially when there are so many protection plans available and plenty of pitfalls to be aware of. Before you go looking for a policy, it’s worth ensuring you are well versed in the basics of life insurance. Here are a few of the top tips for getting the right life insurance policy.
Don’t assume you won’t need life insurance. It is a way of protecting those of us with major responsibilities should we lose our income through unemployment or serious illness. And even if you are covered for death in service through your employer, you should not rely solely on this benefit.
There are a variety of different life insurance policies available, and your own personal circumstances will dictate which is most suitable for you. It’s not just those who have no dependants who assume they do not need life insurance.
Don’t forget about or ignore your policy. Simply taking out a life insurance policy is just half the job, unfortunately. Once you have signed up, you’ll need to review the plan regularly to make sure it’s still relevant to your circumstances.
There are a raft of scenarios which can occur in your life which could make a difference to your premium and any potential claim you might make. Anything from remortgaging your house, to taking on other debts, or from starting or increasing the size of your family to quitting smoking will all effect your life insurance.
Do not protect just one earning family member. A mistake made by many people taking out life insurance to protect their families is to buy cover for the main breadwinner only. This is a common error made when one parent in a family is the sole breadwinner and the other stays at home to look after young children. However, the death of either member of a partnership would have serioud financial implication that you want to be protected from.
Be wary of Over-50 plans. These plans are available for people who have no life insurance or financial provision for family members when they die. Customers pay monthly premiums and provided they have contributed these for at least one or two years – depending on the provider – their family will receive a fixed sum upon the policyholder’s death.
On the plus side there are no medical requirements – the provider will not ask about your health, so they are a good option for those with serious conditions. On the other hand a certain amount of caution should be applied as research suggests these plans could leave pensioners short by thousands of pounds.
Consumer group Which? found, on average, a 60-year-old man paying £15 a month into a plan for 30 years would earn a lump sum of £2,980. Yet, by putting the same amount into a cash ISA with a rate of four per cent he could earn more than three times that amount, £10,313, over the same timescale.
Which? branded the plans as bad value. It said if customers stopped payments they would forfeit a payout or even the return of their premiums. And if inflation were to follow the same pattern over the next 25 years the real value of some plans by January 2037 could be less than in today’s money.
Finally, always seek financial advice. You will have a better chance of avoiding the mistakes by seeking advice from a professional. If you are going to get help, make sure it’s from an independent financial adviser as opposed to a ‘tied adviser’ who works for a company selling life insurance.
