7 common mistakes made when buying life insurance
Buying life insurance can seem like a daunting thing to do, especially if you’re not sure what type of cover is the best suited to you or how much cover you should have in place to make sure that you and your loved ones are fully protected should the worst happen.
To help, we’ve put together 7 of the most common mistakes people tend to make when purchasing life cover (or indeed, when considering it) so that you can avoid doing them yourself if you plan on purchasing a policy soon.
Our tips will help you make a more informed decision when it comes to financially protecting your family and you’ll have peace of mind knowing that you’ve covered all bases.
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Mistake 1: Only considering term life insurance and nothing else
One of the most common forms of life cover is term life insurance, and you can purchase either a level term policy or a decreasing term policy.
As the name implies, the policy lasts only for a specific ‘term’, so it has a start and an end date - unlike whole of life insurance which lasts your entire life and is guaranteed to pay out when you pass away, whenever that may be (and as per your policy’s terms).
Statistically speaking, the chances of the policyholder passing away before reaching the end of the pre-agreed life insurance plan are quite low, but of course, anything can happen and nothing in life is guaranteed.
As an example, many people who buy a house end up purchasing decreasing term life insurance which is designed to pay out a lump sum if the policyholder dies at any point during the length of the term. This payout can then be used to pay off the mortgage so that their partner or family do not have to worry about paying for the house at a very difficult time.
It works out to be a cheaper policy than others as it decreases over time in line with the mortgage. It’s important to remember, however, that if the policyholder does not die within this term and the policy expires (say, in 25 years’ time), they will no longer have cover in place and will have to buy life insurance again (usually over 50s cover), which will work out to be more expensive as the individual will, of course, be older and more at risk of death (compared to a healthy 20-year-old, for example).
If you don’t die within the term then, of course, this is great news! But just bear this in mind when purchasing cover and remember that you won’t get any money back should you outlive your policy (but if you pass away at any point during the term, your loved ones will receive a payout to cover expenses - provided your policy's terms are met).
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Something else to consider is your chances of being diagnosed with a critical illness during your lifetime.
Critical illness cover is a separate policy that can be added to your standard life insurance policy and protects you (and your loved ones) financially if you are ever diagnosed with an illness specified in the policy and you are unable to work as a result of the condition. If this happens, the policy will help you cover any expenses such as mortgage payments, allowing you to focus on recovery and/or treatment without the added stress of money.
For the above reasons, it is always worth looking at all possibilities, comparing different policies to see which one would be best suited to you and your needs, as well as considering possibly having more than one life insurance policy before making your decision if you want complete coverage and reassurance.
If this all seems too much, we highly recommend speaking to a professional life insurance broker who will be able to help advise you (without company bias) on the best policy based on your needs and budget.
Mistake 2: Waiting too long to cover you and your loved ones
Quite understandably, most people don’t consider their own mortality when they’re young and life insurance isn’t a priority, especially if they have no children, but the truth is that buying life insurance at a young age is the best thing you can do as you’ll be offered the cheapest premiums due to being young, most likely healthy and less at-risk of dying.
If you have your own home, you’re living with your partner, you have children or are planning on starting a family, it is highly recommended that you secure a policy as soon as possible.
The longer you leave it, the pricier life insurance can get as there is a higher chance of your health deteriorating the older you get. By putting cover in place now, you won’t have to worry in the future about paying expensive premiums if you get diagnosed with a health condition or put on weight.
Learn more in our guide: What is the best age to get life insurance?
Mistake 3: Over- or under-spending on life insurance
Your monthly payments could easily end up putting you out of pocket (by over-compensating for the level of life cover you actually need) or alternately, being too cheap by leaving you under-insured should the worst-case scenario happen.
Ensuring that you opt for the right amount of life insurance cover is important from the outset, as your main objective is to guarantee that your dependents are fully covered (financially) in the event of your death sometime in the future.
Underestimating the amount your loved ones might theoretically need in this imagined situation could see them struggling to pay any outstanding mortgage payments on the family home or loans that still need paying off when you're no longer here, while even paying funeral costs could prove stressful for your family if the payout is not large enough.
Also, the type of life insurance plan you go for needs to be right for you and your situation, both here and now and years down the line.
As mentioned previously, the best way to get the best policy for you at the best possible price is to speak to a life insurance broker who will be able to determine exactly what type of policy and amount of cover you need, as well as find you the best policy from a panel of trusted and well-known UK life insurance providers.
You might like: How much does the average funeral cost?
Mistake 4: Lying during your life insurance application
This is one of the most crucial things to remember - be completely honest when applying for life insurance if you want peace of mind in the long-run for yourself, and more importantly, your children and loved ones.
Remember, the insurer or life insurance broker is not there to judge you based on any of the answers you provide - they are simply there to ensure you get the right policy and that you and your loved ones are fully covered for all eventualities, so never lie about anything they ask you.
While some of the questions may seem personal, they need to ask them to make sure you’re getting the right protection.
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Failure to disclose everything that's asked of you by a life insurance provider (or broker) as part of the application process is likely to lead to any future claims made on the policy being rejected, meaning that your family will not receive a payout and all those premiums you paid over the years will all have gone to waste, so there's no point in holding back information whatsoever.
For example, if a person denies being a smoker during the life insurance process when in fact they smoke 20 cigarettes a day (or even just 1), and they pass away due to a smoking-related illness, then the life insurance company will definitely not pay out. Even if they didn’t die from a disease that came from smoking, there’s still a high chance that they won’t pay out as they may feel the policyholder could have lied about something else, too. Either way, lying isn’t worth it.
You must declare all information about yourself, including lifestyle or career-compromising medical conditions on a previous occasion(s). Even if you believe that it’s not relevant, it more than likely will be to the insurer. So make sure you fully disclose any information regarding pre-existing health issues, regardless of how relevant/irrelevant you feel they may be.
While declaring an existing medical condition is likely to bump up your premiums, it may not go up that much in price, and at least you’ll know that your dependents will be able to successfully make a claim on the policy when you pass away, despite a slightly higher cost.
Mistake 5: Complacency and avoiding the thought of death
Every year, there are an unbelievable amount of people who put off getting life insurance because they think death isn't going to happen to them just yet or they find it too depressing to think about. Unfortunately, many people who think this way pass away without life cover in place, leaving their loved ones to struggle financially while having to deal with the awful news of their loved one's passing.
According to recent research carried out by MoneySuperMarket, as much as 40% of the UK population (on average) do not have life insurance policies in place to protect themselves and/or their families.
Not only this, but Winston’s Wish reports that 41,000 children in the UK will lose a parent before they turn 18-years-old.
As hard as it may be to think about, consider the following and then decide if it’s worth putting off:
- Will your children cope/survive financially without your income?
- Will your spouse be able to live comfortably and make important payments if you’re no longer there?
- Will your loved ones be able to afford the cost of a funeral if you were to suddenly pass away?
If you worry for the future of your family in the unexpected event that you were to suddenly pass away, don’t put off buying life insurance any longer. Get peace of mind as soon as possible.
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Mistake 6: Only getting one life insurance quote
Shopping around for life insurance is crucial if you want to secure the best type of policy at the best possible price.
Life insurance can be expensive depending on your level of health and other factors, so it’s worth speaking to more than one insurance company for a life insurance quote and even using comparison sites to compare quotes online. Just remember that comparison sites don’t always have all life insurance companies on there, so you could be missing out on even better deals.
Doing this can, however, be a lengthy process and might even make the whole process even more confusing and daunting, which is why we recommend getting in touch with a trusted life insurance broker, like Bobatoo, who can do all the hard work for you.
Mistake 7: Naming only one beneficiary
You may simply assume that your partner will receive the life insurance payout as they’re your ‘official’ next of kin, but you should still make sure that you explicitly state who you wish to benefit from your life insurance policy if a claim should ever need to be made.
While you may just wish to put your partner down as a beneficiary, it’s worth bearing in mind that there’s always the chance that they may pass away before you or you may even die at the same time due to an accident, for example.
While this is understandably a really hard and upsetting thing to think about, it could always happen, so you should name another or even a third beneficiary, such as your children.
You can also clearly state your exact final wishes in a will, such as who your life insurance policy’s beneficiaries are, who is going to inherit what share of your estate, what should happen in the event that there are no beneficiaries (gifting estate or part of it to a charity of choice, for example). Learn more in our guide on writing a will.
Important: If you and your partner separate/divorce after purchasing life insurance or writing a will, or any other major life event takes place, it is crucial that you revise all of your policies and will to ensure they are up-to-date and are in-line with your exact wishes.
For more information regarding beneficiaries, read our helpful guide or get in touch with Bobatoo today:A guide to naming life insurance beneficiaries.
Learn more by reading our useful guides below, or speak to one of our professional life insurance advisors and get a quote from Bobatoo today (obligation-free):
- A Guide to Critical Illness Cover
- New Data Shows Life Insurance Sales Increased During Lockdown
- Life Insurance for Over 50s
- Do Young People Need Life Insurance?
- What Happens to Our Debts When we Pass Away?
- Warning Issued Over Scam Email Claiming COVID-19 Vaccine Voids Life Insurance
- Benefits of Life Insurance
- Do You Need Life Insurance For a Mortgage?