10 life insurance mistakes to avoid

Learn the 10 life insurance traps to steer clear from when looking for cover.

Taking out life insurance is a straightforward process...if you take a few steps in the right direction. Many Australian’s neglect taking out life insurance because they feel it is either too expensive or will never actually pay out a claim... this may be the case if you rush the purchase and don’t get adequate cover that still weighs you down in payments.

Here are 10 common life insurance mistakes to avoid when taking out cover:

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  1. Going with the first policy you find. Going with the first policy you come across without taking the time to compare the insurance market and see what is available will usually leave you paying for too much for a policy that offers too little or too much cover. Take the time to determine what cover you actually require and compare quotes from a number of insurers.
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  2. Relying on the cover in your super. Many people make the mistake that the life insurance in their super will be enough. While most super funds will provide a default level of cover it is usually only a portion of what ill be required in the event of a claim (as little as 20%). Some other disadvantages to be aware of include;
    • Benefit payments are subject to tax
    • Premiums are paid from your retirement savings
    • Dependent on employer paying premiums... cover will lapse if they don’t pay. Cover may lapse if you change jobs
    • Could be paying fees for cover across multiple policies
    • Income cover in super generally ends after two years as opposed to age 65 like other policies
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  3. Choosing on price, not coverage. No one wants to pay too much for cover but why take out insurance if it gives you a nasty shock in the event of a claim. Cheap policies are cheap for a reason – they don’t provide the same level of cover and are often riddled with exclusions for when a claim will actually be paid. Read the fine print to see the price matches the cover provided.
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  4. Delaying till you are older. In addition to leaving you exposed to financial hardship in early years, not taking out cover until you are much older could also mean your premiums are much higher. Premium rates only increase with age as you become more susceptible to medical conditions, it can be better to apply earlier to secure a more competitive rate.
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  5. Overinsuring. You may find that your situation only requires a basic level of cover as oppose to the policy packed with features. Determine an appropriate level of cover based on existing protection and your financial obligations before signing up to the all-inclusive option.
    Stepped and Level Income Protection Premiums
  6. Not reviewing your premium structure. Most providers offer three different types of premiums to applicants. Choose the option that best matches your financial situation and spending habits:
    • Stepped: Start low and increase over time
    • Level: Start higher then stepped but remain the same
    • Hybrid: Begin stepped before converting to level structure
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  7. Ignoring the fine print: It might be tedious and boring but skipping through the fine print could mean nasty surprises at claim time. Know exactly what you are covered for before purchasing cover. Features like “redundancy cover” are usually riddled with extra exclusions.
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  8. Choosing the wrong income cover: Not knowing the difference between Indemnity and Agreed Income Protection contract:
    • Agreed is based on your income at time of application
    • Indemnity is based on your income at the time at claim
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  9. Choosing the wrong TPD cover: Two types available:
    • Own occupation: again in just your current occupation
    • Any occupation: incapable of ever working again in all forms of work which you may be reasonable suited towards
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  10. Lying on your application. Not being honest on your application to save on your premium – it might be tempting to withhold some details of existing medical conditions or your smoking habits but it is only likely to see your policy become void in the event of a claim. Insurers are ruthless when investing claims and will go to great lengths to review your medical history and other relevant documentation to see if you’re still eligible.

The process of taking out insurance can be made much easier by speaking with an insurance consultant. If your not 100% sure what cover you actually require or how much cover you may need to cover your existing financial obligations, a consultant can help you compare the different options available. There is absolutely no obligation to sign up for cover when making an inquiry.

Some other benefits of speaking with a consultant include:

  • Help you find discounts available from different insurers so you can save even more
  • Use their knowledge of the market to help find specialist insurers willing to provide cover for your situation
  • Help you prepare all the necessary paperwork for your application and submit it on time

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Compare life insurance quotes from these direct brands

Name Product Maximum cover Maximum Entry Age Minimum Sum Insured Guaranteed Future Insurability Expiry Age Short Description
$1,000,000
64
$100,000
No
No expiry age as long as premiums are paid
Get a refund of 10% of the premiums you've paid (in the first 12 months) with The Real Reward™.
$2,000,000
74
$100,000
Yes
99
Join Qantas Life Protect and earn up to 150,000 Qantas points. T&CS apply.
$1,500,000
69
$50,000
Yes
99
Receive a 10% discount on the second person when two applications are submitted at the same time, and both policies are issued.
$1,500,000
64
$100,000
No
No expiry age as long as premiums are paid
Cover up to $1.5 million with Guardian Life Insurance.
$1,500,000
65
$100,000
Yes
No expiry age as long as premiums are paid
Go into the draw to win (1 of 10) $1,000 eftpos gift cards when you get a quote for Medibank Life Insurance. T’s and C’s apply.
$15,000,000
69
$0
Yes
99
Get a quote for up to $15 million in life insurance cover. Take out a policy before 31 October 2018 and get your first month free. T&C's apply
$1,500,000
69
$0
Yes
99
A simple life insurance product that can offer up to $1,500,000 in a lump sum payment on death or diagnosis of terminal illness.
$1,500,000
65
$3,000
No
80
Protect what matters with a new eligible Virgin Life Insurance policy and you can earn up to 40,000 Velocity Points. Ends 31 October 2018. T&C’s apply.
$1,000,000
65
$100,000
No
No expiry age as long as premiums are paid
Receive one month's premiums off every year if you pay annually upfront. T’s and C’s apply.
$2,000,000
59
$50,000
Yes
99
Get flexible life insurance up to the sum of $2,000,000.

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William Eve

Will is a personal finance writer for finder.com.au specialising in content on insurance. While he cannot give personal advice to clients, Will enjoys explaining the intricacies of different types of protective cover to help individuals and businesses find affordable cover that won't leave them underinsured.

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