Life Insurance Buying Tips

Life insurance is a serious investment. In effect, you secure the financial well-being of your dependents after your death by paying premiums at regular intervals while you are alive. Making a poor investment choice could have some nasty repercussions on your pocket right now, or worse, on the pockets of your dependents once you are gone.

If you are about to make this type of investment, these life insurance buying tips could come in useful:

Tip 1: Find a broker
We all have our areas of expertise and insurance may not necessarily be yours. If this is the case, a good, experienced broker could be worth his or her weight in gold. They normally have agency agreements with all the large insurance companies, so you will gain access to many different products through a single portal. Also, brokers tend to be circumspect about the guidance they provide, because they can be sued under South African Law if they aren’t.

If you have any doubts, you can check their credentials because reputable brokers are normally registered with one or more of the professional insurance associations in our country.

Tip 2: Buy the right type of life insurance
‘Different courses for different horses’, as the old adage goes. In life insurance terms this means that not all policies are equally appropriate for all people.

To give you an idea: Should you require life cover until your death, you may want to opt for whole life cover instead of term life insurance. If you want to add a savings portion together with some other benefits on top of your life cover, a universal life type of product could turn out to be the better option for you.

Spending some time with your broker mulling over exactly what it is that you need and looking at the various options open to you, will be time well spent.

Tip 3: Buy the right amount of Insurance cover
The right amount of cover is determined by the amount of income you want your survivors to receive after your death, the cost of winding up your estate, your assets and liabilities, and the value of other life insurance that you may already have in place. Buying too much cover will result in you paying more than is necessary and buying too little could result in your family facing hardship after your death.

Your broker can perform an analysis to help you establish exactly how much additional cover is required to meet your current needs.

Tip 4: Only buy what you can afford to pay
The premium you pay depends on the amount of cover you select and several risk factors such as age at the time of insurance, health and medical history (including family history), tobacco use, etc. If the premium is beyond your means, consider dropping some of the benefits you may have added to the policy, such as trauma or dread disease, before cutting back on the amount of cover you have selected.

It is very important that you can comfortably afford to pay the premium. If not, the policy will eventually lapse, leaving your family without any cover at all.

Tip 5: Shop Around
Not all companies are equally cost effective on all policy types. Some companies specialise in term life policies, others in whole life policies; while others still have the ability to offer universal policies at a more competitive rate than the rest.

If you use a broker, he or she will obtain quotes from the various insurers and help you to compare these on a feature-by-feature basis. Brokers also normally know which insurance companies’ finances are sound and which are particularly efficient when it comes to settling claims. When you buy insurance, the day you need the protection may be decades away, and you’ll want the company to be around to write the cheque when you need it.

Tip 6: Add benefits instead of buying discrete policies
If you are thinking about getting insurance for dread disease, functional impairment, etc., you could save money by adding these benefits to the life insurance policy you are about to buy instead of buying discrete policies for each type of cover.

Tip 7: Opt for a rider
A rider affords you the opportunity to periodically increase your life cover by as much as 20% without having to prove your health. If you don’t select a rider, you will need to go through a medical examination and blood tests each time you want to increase your insured amount. If your health happened to have deteriorated since your previous medical examination, you could end up paying a higher rate for the cover than would have been the case had you opted for a rider.

In closing
Once you have purchased your life insurance policy, do remember to review and understand its provisions. South African law gives you a 30-day cooling-off period. Within this period, you have the right to cancel the policy without incurring any penalties at all.