subject: 6 Common Mistakes With Life Insurance Policies [print this page] 6 Common Mistakes With Life Insurance Policies
The unfortunate thing about these mistakes is that you don't get a second chance to learn from them! Today we go through some of the aspects of life insurance that commonly trip people up, and how to avoid them.
1. Not getting around to talking about it
Thinking about life insurance, but haven't yet mentioned it to your partner? You'd be surprised how many couples have 'been meaning to talk about life insurance' for years before one half of the couple died. If you never get around to talking about it, you'll never get a policy, and that makes it certain that your family (or you!) will face considerable financial stress after death.
2. Thinking that 'some is better than none'
Of course it's true that having some life insurance is better than having none. However, the number of people that believe the default amount of life insurance available through their superannuation company will provide for their family after they die is staggering ... and actually very sad. $50,000, $100,000 or even $200,000 sounds like a lot of money ... but remember, you're gone permanently.
3. Using old wives tales for your benefit calculation
You may have heard people say that you can calculate your ideal life insurance benefit amount by multiplying your yearly income by 7, etc. People have vastly different lives and situations, and while an elderly couple may need much less that this, a parent with three kids under 5 will need much more.
4. Forgetting to update your policy
You'll want to update your benefit amount (adjusting either upwards or downwards) when you have extra kids, when your kids move out of home, when you pay off your mortgage, when you reach a set savings goal, etc. Full disclosure is an important part of ensuring that your life insurance company has a full picture of your medical history at application time, which greatly assists at claim time.
5. Thinking it's too complicated
Before whole of life policies stopped being sold in Australia, people used to do all sorts of fancy financial footwork with life insurance policies, and ordinary families began to see them as an investment tool that was 'out of their league'. Now, however, the only type of life insurance sold in Australia is term life, which is very simple. You pay your premiums, and the insurance company pays out when you die. So long as you still have your policy in place of course.
6. Thinking it's too expensive
Internet-induced competition has made life insurance cheaper than ever, and also made policy comparison easier than ever. You won't know how much life insurance costs until you get a quote ... and most people are pleasantly surprised!
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