Choosing the right life insurance policy can help you and your dependents feel more secure about the future. However, there are certain common mistakes that can seriously impact on the likelihood of your policy paying out in the way that you would expect. Read on to find out how to avoid these errors and learn how to ensure that your loved ones will be adequately supported in the event that you are no longer there to provide for them.
- Do not choose a ‘low-start’ life insurance policy:
Low-start life insurance policies often look appealing at first glance, as they typically come out at the top of any comparison list in terms of price. However, there is an important reason why these policies are so affordable. Specifically, as the term of the policy goes on, the monthly premium will rise. In just a few years, your policy may be much more expensive than the least cost-effective policy featured in your original comparison chart. Level-term policies are a much better choice, as your monthly premium is guaranteed to remain consistent.
- Be sceptical of reviewable policies:
If the price of a life insurance policy is particular low but the policy is not a low-start policy, it may be a reviewable policy. This type guarantees a fixed premium for just five to ten years, and after this point you can expect the policy to be attached to a new price. Often, this new price will be extremely steep. Once again, level-term policies are a better bet.
- Always be honest about your health:
While you may think that telling a few white lies about your medical history or current health condition might be a good way to save some money, this type of dishonesty can lead to the invalidation of your entire policy. As a result, your dependents may get an unpleasant shock when the policy does not pay out after your death. If you are concerned about a particularly serious illness or other on-going health problem, you should know that life insurance is attainable even if it is more expensive and trickier to arrange. In many cases, a specialist broker will be the best choice when you are looking for cover that applies to your health situation, but certain charities can also give advice on common illnesses (such as heart disease and cancer). In addition, make sure that you tell the truth about specific lifestyle choices and factors that may influence your policy. For example, do not lie about smoking or drug use.
- If you are part of a couple, don’t discount the possibility of two policies:
If you are married or living with a partner, you may think that the natural (and most sensible) choice will be to opt for a joint life insurance policy that covers both of your lives. Some of these policies pay out when the first person dies, while others pay out only after both partners have passed away. So-called ‘first-death policies’ will help to provide for your family in the event that either of you dies, which can be useful if you need to pay off a mortgage or have dependents who were heavily reliant on the income of your partner. Meanwhile, ‘second-death policies’ are often used to cover things like anticipated inheritance tax. However, is worth noting that you and your partner may actually get the best value for money from purchasing two distinct life insurance policies. Firstly, if you opt for a joint policy that ends when your partner dies, you may end up paying huge amounts of extra money in order to buy fresh coverage in old age. Secondly, it is seldom more expensive to buy two policies. Thirdly, your dependents can expect twice the pay-out if you have two policies and you both die within the terms of those policies.
