7 common mistakes made when buying life insurance
As humans we are pre-programmed to make mistakes (and hopefully learn from them and ensure they’re not repeated); it’s just the way we’re wired. From being innocent children engaged in the steep learning curve of life through our awkward teenage years through to fully-fledged adulthood (where responsibility and life experiences are supposed to safeguard us from stupidity). Not that it ever works out like this, as we seem perpetually prone to having gaffs, exposing ourselves to subsequent ridicule and generally not always applying the brain before the hands and/or mouth which, essentially, marks us all out as humankind at the end of the day.
From overspending on our plastic, experiencing a catastrophic wardrobe malfunction and dating someone your parents never approved of through to DIY haircuts, agreeing to crucial T’s & C’s on important docs without actually reading them and getting so drunk that you truly believe that you’re a superhero with the ability to fly, only to wake up covered in bruises.
You’ll probably not be surprised to know that idiocy has no bounds when it comes to the matter of insurance either, as would-be policyholders and insured parties boast an impressive/unimpressive history of making schoolboy errors when it comes to arranging and rubber-stamping legally-binding insurance product literature.
Individuals looking to tie-up dedicated life insurance policies aren’t immune to mistake-making either, where susceptibility to making a fool out of yourself based on your ill-conceived or advised decisions could easily lead onlookers to thinking that you’re, at best, a bit short-sighted or, at worst, a few sandwiches short of the proverbial picnic.
That’s why we’ve put together this helpful guide which flags up the most common mistakes people make when buying life insurance – so that you can avoid them in your future endeavours.
So, what follows is – in our estimation – a collection of some of the most obvious aspects people accidently overlook or wilfully turn a blind eye/deaf ear to while negotiating a life insurance package deal with their insurance providers. Ignore it at your peril…
Mistake 1 – Buying Term Life insurance and nothing else
Statistically-speaking, the chances of the policyholder passing before reaching the end of the cycle pre-defined in a term life insurance plan are extremely low.
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Balance this with the much higher chances of the insured party being diagnosed with a critical illness and the likely upshot is that being off work due to a serious illness is significantly more probable, with the potential to lose valuable income streams even more so.
In which case the counter argument that implies the blending of different life insurance types at the outset (forming one singular policy) could be the best solution. Either way it’s imperative that you look at ALL possibilities and permeations before ultimately deciding.
Mistake 2 – Biding you time
Most people don’t worry about their own mortality when they’re young, and are usually of the belief that they’re destined to life forever; like Peter Pan or Cliff Richard. But this isn’t that case (unless you’re planning to take out a cryonics insurance policy one day and revisit earth once you’re thawed out properly), so the sooner you acknowledge this and arrange an appropriate life insurance policy the better off you’ll be. And not just safe in the knowledge that you’ll be covered for most eventualities should you meet your maker earlier than envisaged but financially too.
That’s because the younger the would-be life insurance policyholder is when they take out the plan, the more cost effective it tends to be. Ideally, once you’ve settled down, got married, bought a house, started a family, etc… Every year you choose to delay, the pricier a policy becomes, as the likelihood of your body/health deteriorating grows ever nearer, amongst other key factors life insurance providers take into account. Read our guide on when to get life insurance.
Mistake 3 – Over or under-spending on life insurance cover
Your monthly payments could easily end up putting you out of pocket (by over-compensating for the level of life insurance cover you actually need) or alternately, falsely economising by leaving you under-insured should the worst case scenario come into play.
Ensuring that you opt for the right amount of life insurance cover is paramount from the outset, as your rudimentary objective is to all but guarantee that your dependents are fiscally catered for in the event of your untimely demise 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 on the family home or loans, while even paying funeral costs could be compromised by what’s realistically left in the pot.
Over-cook your life insurance payments and you might conversely find it difficult to make ends meet whilst you remain in the land of the living.
Also the type of life insurance plan you go for needs to be right for you and your predicament, both here and now and years down the line. A point in question being why plump for a decreasing term life insurance package if you don’t have a mortgage to cover, for example. Your best bet is to refer to our life insurance calculator, which provides a ball-park idea as to just what they need to be putting aside in this instance.
Mistake 4 – Glossing over the truth on life insurance application forms
A biggie this, in terms of mistakes which you really shouldn’t be found guilty of if you want peace of mind in the long run, for yourself and moreover, your dependents.
Telling any fibs, little white lies or porkies at the beginning will almost certainly come back to haunt your family when you’re no more.
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Failure to disclose everything asked of you by a life insurance provider as part and parcel of the applicative process could lead to any subsequent claims made on the policy not being successful; and more worryingly, any inconsistencies highlighted at a later date leaving your benefactors at serious monetary loss as a result of your unwillingness to front up when it mattered.
More often than not it’s health grounds which have the most habit of leaving a sting in the tail, with many life insurance policyholders neglecting to mention that they’re a smoker or have experienced lifestyle or career-compromising medical conditions on a previous occasion or three. Even if you believe that it’s not relevant, it’s in you (and your nearest and dearest’s best interests) to confirm ALL pre-existing health matter, irrespective of whether you (in the capacity of a would-be life insurance policyholder) consider it relevant at this juncture. Although it will probably result in you paying out a few quid more in premiums going forward, at least you’ll protect your dependents claim on the policy when your clogs are finally popped.
Mistake 5 – Complacency
Assuming the ostrich position isn’t going to provide your loved ones with a regular source of income in the event of you no longer being able to (through bad health, serious injury or indeed, death), so why risk everything simply by believing ‘it’ won’t happen to you.
Did you know that here in the UK it’s estimated that some 61% of families DON’T have any life insurance policies between them? The hard-to-shake misconception is that life insurance doesn’t pay out and that the application process is too complex; both of which are huge, slanderous untruths. For a start 99% of life insurance claims prove successful, whilst form-filling isn’t anywhere near as stressful or time-consuming as cynics might otherwise lead you to believe.
Obviously nobody wants to dwell on their own mortality, but this frightening stat might prompt you into life insurance-purchasing action if nothing else does. The fact being that recent research has determined that 1 in 29 children will lose a parent before they finish full-time education.
Mistake 6 – Drawing the line at only one life insurance quote
As mistakes go this one’s right up there with Decca Records turning down the Beatles because they weren’t sellable. Shopping around is the absolute key, and there’s no better place than here to start searching high and low for comparable life insurance quotes. And you don’t have to necessarily look THAT far to find some of the best deals (hint, hint). But whatever you do don’t just settle for the first price you’re offered, however tempting that might seem at the time, as rest assured, there’ll be a sweeter deal just round the corner. If not in monetary terms, then conversely by what the plan has to offer and the range of features it has.
Mistake 7 – Naming beneficiaries.
OK. You assume that your partner will end up with the life insurance pay-out, as they’re your official next of kin, but nevertheless you should explicitly name them in this capacity or predispose them to potentially walking away with nothing at the end of (your/the policyholder’s) day.
But don’t just stop at underlining the one person’s name, as there’s always the risk that they shuffle off this mortal coil before the policyholder does, or, as the case has been known to be, both dying at the same time as the result of being involved in an accident of some description. As depressing a notion that this is, horrible things do happen and ergo life insurance exists to help counter some of the financial effects of these probabilities if not the emotional.
With this in mind it’s worthwhile naming a secondary or even tertiary beneficiary, with both appreciating that the spoils of the life insurance bootie won’t be shared, except in the event of the primary beneficiary not being around.
Naturally if you and your spouse separate or divorce during the term of the pre-agreed life insurance policy then it’s your prerogative to revisit the documentation and re-order the beneficiaries as the previous logistics may no longer apply. In addition to this – and while citing children as beneficiaries is popular – it can also cause more problems in the long run; not least because if the child is classed as a minor they won’t be eligible to receive the life insurance policy funds, unlike a named adult. Therefore it might be prudent to instigate a trust to oversee the beneficiary role, or alternatively a custodian or guardian whose role it would be to administer the assets. Read our guide to naming life insurance beneficiaries.
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