Taking out life insurance is easily the best decision you can make to protect the future of your loved ones financially. For example, if you were to pass away or become critically ill, your family will have full access to financial support during that difficult time.
But life insurance remains a complicated topic for many people, especially those who don’t know enough about it.
This post will highlight the top seven common mistakes we see people making and how you can avoid them when taking out life insurance.
Not knowing the different types of life insurance available
If you didn’t know, there are other life policies, with each providing additional benefits based on the area of your covered life. This makes it vital first to understand the various types available to ensure that you pick the most suitable one for your specific needs.
The most common and easy-to-understand type of life insurance is term life insurance. The plan is classified into two: level and decreasing.
Level term life insurance works so that your cover and the payout are constant throughout your policy term. This means that regardless of whatever point of your policy term you pass away, your family will receive the same amount agreed upon with your insurer.
On the other hand, decreasing term life insurance, as the name suggests, reduces the amount left to pay on your repayment mortgage. The more you pay off your mortgage, the less your cover gets.
The second most common type of life policy is Whole Life insurance. This plan guarantees your loved ones a payout as long as you pay your premiums as agreed with your insurer.
Finally, critical illness cover will ensure that you and your family are supported should you be diagnosed with a critical illness or need to undergo surgery.
By familiarizing yourself with these different life plans, it becomes easier to pick a policy that works best for you and your dependents.
Waiting too long before taking out life insurance
One of the greatest misconceptions about life insurance is that it is not as important for young people as it is for older ones. But life insurance is crucial for people of all ages as we cannot predict when a fatal illness or accident might strike.
What’s more, experts recommend taking out life insurance when young and healthy. This way, you get to enjoy maximum coverage at lower premiums.
Giving incorrect information
It is common for people to provide wrong information to insurers to save on premiums or purchase plans quickly. Don’t fall into this trap.
Hiding important personal and health information or providing misleading information can lead to the insurance company rejecting your claim when a risk occurs. Ensure you provide accurate information to avoid getting disappointed when in need of financial support.
Ignoring policy documents
Despite constant advice from financial experts on the need to carefully read all policy-related documents before taking out life insurance, most people still do not bother about it.
By reading these policy documents, you familiarise yourself with the product features, inclusions and exclusions, terms and conditions, and exemptions. This way, you can make a more informed decision and avoid future disputes.
Not informing your family.
Cases of people taking out life insurance and keeping it a secret from their family members are very common today. But failure to inform your loved ones about your coverage means it may not benefit them in time of need.
Be sure to inform your family once you take out or update your life insurance. Let them have access to the policy documents so that they can file the claim when necessary.
Purchasing inadequate coverage and tenure
Most people, unfortunately, settle for a life insurance policy based on the premiums required. While it may seem like a good idea to settle on a policy with lower premiums, your family will suffer in your absence if the coverage and tenure are not adequate.
We highly recommend taking out a policy with adequate coverage and tenure to ensure your family’s future is secure.
Incorrect ownership and beneficiary setup
When taking out life insurance, name a primary beneficiary and a contingent or backup beneficiary. In the unfortunate event of your death, it will be obvious who your primary beneficiary is, which will prevent disputes and wrangles among those left behind.
Conclusion
Choosing the right life insurance will be of great financial benefit to your loved ones in your absence. Ensure you understand the different life plans available and choose the one that best fits your family’s needs.
Moreover, provide the insurer with accurate information to avoid disappointment in times of need and make sure you name your primary beneficiary.
Finally, thoroughly read the policy documents before committing to a plan, fully aware of what you are getting into.
