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.
  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.
  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
      Refinancing an SMSF terms and conditions
  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.
  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
  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
  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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Coverage is the amount of money that you will be paid in the event of a claim. An insurance consultant can help you determine an appropriate amount. Calculator
Provides a lump sum payment if you become totally and permanently disabled and are unable to return to work.
Provides a lump sum payment if you suffer a serious medical condition. Cover can be taken out for 40-60 medical conditions depending on the policy you choose.
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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
No expiry age as long as premiums are paid
First month FREE when you take out Real Family Life Cover. Available for a limited time (T&Cs apply).
Get life cover up to $1.5 million. Plus, ahm health members can save 10% off premiums.
Receive a 10% discount on the second person when two applications are submitted at the same time, and both policies are issued.
Choice of cover options and flexible premiums to suit your budget. No lock-in contracts and fast application.

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.
No expiry age as long as premiums are paid
Cover up to $1.5 million with Guardian Life Insurance.

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