trap

9 Costly Life Insurance Traps To Avoid

Don't skip over the fine print: Avoid these life insurance traps.

In order to try and ensure that you get the right insurance coverage that you are able to benefit from having this insurance coverage in place for as long as possible, some potentially costly insurance traps to avoid include: When it comes to various important types of insurance coverage such as life insurance, income protection insurance, disability insurance and other forms of coverage designed to protect your financial situation or that of your loved ones, you need to make sure you make the right choice. Choosing the ideal insurance plan is not always as simple as it sounds, and even maintaining your plan isn't always straightforward.


1. Choosing the first quote you receive

Many people make the mistake of simply going with the first quote that you get when taking out insurance, as this is more likely to result in you spending over the odds on your coverage.

    • Compare more than one quote. Always ensure you compare multiple quotes so that you can get a more competitive deal.

2. Thinking your policy will cover all events

Many people have fallen as victims and not get the paid the benefits they require. One of the reasons why their claims are rejected is because of the basis of the claim that does not match the features of the policy or it has been excluded. Failing to check the features and exclusions on the insurance plan that you choose can have a devastating effect.

    • Check the features, benefits and exclusions. Make sure you check the features and benefits of the plan you are considering can help you to make a more informed decision with regards to the plan that is right for you.

Don't forget to double check the features and exclusions on your insurance policy.


3. Underinsuring

Some people try to get around the cost of coverage by taking out less coverage to reduce premiums. However, this could leave you or your loved ones financially high and dry in the event of a claim, as the coverage you have taken out may not be sufficient to cover the necessary financial commitments.

    • Do not risk underinsurance. Speak to an adviser about your personal needs, debts and future obligations.

4. Picking a policy purely on it's price right now

More importantly, people often choose a policy with a stepped premium that looks affordable initially, but is set to rise in the future.

    • Avoid making your choice solely on price and look at the premium type. Look at what the policy provides and if there is enough cover. Consider the premium type and assess if it's affordable in the long run.

5. Blowing out your budget

Some people don't consider how much life insurance will cost in relation to their budget. This can leave policy holders unable to make payments and ultimately lose the premiums they have paid.

    • Don't blow your budget: Although you should avoid basing your decision about insurance solely on price, you also need to ensure that you can maintain your premium payments to avoid invalidating your coverage. You therefore need to work out what your maximum budget is to comfortably afford the premiums and try and stick within this.

Cheaper is not always better, but it's important to stick to a budget you can afford without sacrificing the quality of coverage.


6. Choosing the wrong form of life insurance for your personal needs

There are so many different types of insurance plans these days it is little wonder that so many people get confused. You need to work out what your goal is before you take out coverage and then take out the most suitable plan and type of coverage. For example, if you are a single person with no children who lives alone and relies on their income, life insurance coverage is may provide you with less of benefit of peace of mind compared to income protection insurance coverage.

    • Make sure you take out the right insurance. Research online and gain an understanding of life insurance products so you can take out the right policy.

7. Forgetting the details

Many of us are guilty of failing to pay attention to the small print on documentation such as insurance policies before we make a commitment. For instance a life insurance policy with levelled premiums may still rise in if you agree to you policy being indexed to meet the cost of inflation.

    • Read the fine print.  Check the small print before you commit to any particular plan or provider.

8. Not reviewing your policy as you personal circumstances change

A lot of people take out various forms of insurance and then forget all about them, confident in the knowledge that they have coverage in place. However, this is not always enough, as your circumstances and therefore your needs may change, which in turn means that relevant changes may need to be made to your insurance accordingly.

    • Failure to review your policy and your needs at least once a year. You should make sure you review your needs on a regular basis and then review your plan to ensure that it still matches your requirements.

Your circumstances will change, therefore reviewing your policy is fundamental to ensure the level of coverage is still adequate and relevant to your needs.


9. Going in blind and uninformed

Not all of us have the knowledge, experience or confidence to know exactly what is going to be best for us in terms of insurance. However, many people who are uncertain about their insurance needs and choices still go ahead and sign up to what they hope will be the right plan. This can be a costly mistake.

  • Speak to an expert.  If you are uncertain about what your needs and the most suitable coverage for you will be, speak to a financial expert and get advice, as it could save you a lot of hassle and wasted premiums in the long run.

Recap

Be aware of insurance traps by following these very simple rules:

  • Get multiple quotes
  • Always check the features, benefits and extra options
  • Price sometimes equates to quality
  • Stick to your budget
  • Don't sacrifice your level of cover for better premiums
  • Know what you want to be covered for
  • Don't forget to know about the exclusions on your policy
  • Always review your existing policies and keep it current

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Richard Laycock

Richard is the senior insurance writer at finder.com.au and is on a mission to make insurance easier to understand.

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