DOs and DON'Ts when buying Life Insurance

Once you acknowledged that you are not Superman or Wonder Woman, nor an accurate fortune teller and you still have financial dependents (spouse, parents or children) you would have looked into buying a Life Insurance. That statement is valid if and only if you acknowledged that you don’t have super powers. If you didn’t get to that maturity

level yet, you would still tell yourself “it can never happen to me” which is called denial, or “instead of paying for insurance, I’ll build assets and will leave those to my dear ones” which is very good, but that means you will definitely be around to build them, as it can never happen to you, as you have super powers and you are a fortune teller.

A Life Insurance should be replacing your ability of generating an income for yourself or your financial dependents and in some cases, it can be seen as a succession planning tool (where inheritance tax might be applicable on existing estate). Nothing else… as the insurance premium should only be seen as a cost, which needs to be as efficient as possible (realistic, sustainable and affordable for the term of your policy).

With that in mind, here are my views (few simple ones) on what to do and what not to do when buying an insurance policy:

The DOs

- Calculate the protection requirement (how much life cover, critical illness or permanent total disability you need, based on your requirements and lifestyle.

- Establish a budget (monthly/annually) that is realistic, sustainable and affordable, for yourself and your dear ones to be protected in case of the worst should happen.

- Get different quotes (preferably from international providers) and understand the key features of the product (read the Key Features Document) as while similar, they tend to be acting different in particular circumstances.

- Have a full understanding how the cover works (death, critical illness, permanent disability), as when and how yourself or your family can claim.

- Decide what’s best for you, only once you have the full picture (need, costs, features).

- Sign the application without delay (remember, you just acknowledged you are not superman nor a fortune teller and unforeseen events can happen at any time) as some providers tend to cover accidental death (T&Cs applicable) from the moment they receive the application, without receiving any premiums.

- Provide full information on the application (health and lifestyle questionnaire) and be as accurate as possible.

- Keep paying the premiums for as long as is needed and cancel the policy once is not needed anymore (no more financial dependents and/or already relying on income generating assets as constant source of income).

- Let someone that your trust know about your protection arrangements (it would be a shame for you to pay and nobody to know that there can be a claim). Wills are a good place to mention them for example.

The DON'Ts

- Don’t ever think that the premium is not a cost, as it is a cost; the cost of your peace of mind and the cost of your financial security and of your family’s.

- Don’t take a higher cover than needed, as that would generate a higher cost and eventually you will cancel it.

- Don’t take a lower cover than needed, unless the cost of what’s needed is unaffordable at the present point and is much better doing something rather than nothing, to provide to yourself and dear ones peace of mind.

- Don’t provide inaccurate information on the application, as it might lead to a “non-payment” upon claiming (if you touched any form of nicotine in the last 12 months, then you are a smoker…. There is no such thing as “social smoker” for example and in order to save aprox. 30% of the monthly cost, many are tempted to lie on the application… just don’t).

- Don’t delay the medicals (part of the underwriting process). For Critical Illness cover, usually there is a 90 days buffer from the 1st premium paid to effective cover. Get covered at the earliest.

- Don’t buy based on a verbal explanation of the product (you can be lied to or passed on wrong information, based on the lack of knowledge on the “adviser’s” side). Always read the key features document.

- Don’t drop the insurance application if you get rated (that means your medical results are not showing a good lifestyle). Get the protection up and running, adjust your lifestyle, re-apply 6-12 months later and once accepted at standard rates, cancel the rated policy.

- Don’t lie to yourself… you are not superman nor a fortune teller (I know this might be repetitive, but you can’t imagine how many times I came across “superman” or the “fortune teller” in my practice.

- Don’t ever buy a Life Insurance to make your family rich in case you die (as main purpose or drive to purchase)

- Avoid having a joint life policy. While assets can be divided in case of a divorce, life policies can’t. I know nobody wants to think of a divorce but guess what, they happen, as well as death happens.

- Don't ever think that you don't need to look into your protection arrangements ever again. Life style and needs are constantly changing so it is very likely for the protection requirements to change as well (up as well as down).

While a claim is never wanted (by any of the parties), protection policies do tend to give peace of mind and insure a decent life for the dependents, in case an unpleasant event takes place.

In general, we tend to pay approximately 2-5% of the value of our cars for their annual insurance… Based on the same exercise, how much is your life worth, taking into account how much you are paying at this point for your life insurance policy? Do we love our cars more than ourselves or dear ones, looking into how much we are spending on protection ?!

Always available to take questions and hear your views.