5 expensive mistakes you could make when buying life insurance
Not comparing the market
When looking for a life insurance quote, it is essential that you compare the whole market before investing in a policy. There is a multitude of different insurers in the UK competing for business, which will all offer something different. To make sure you do not end up paying more than you need to, you could use a broker or a life insurance comparison website, or go direct. Whilst going direct to an insurer may seem like the easiest option, you could find yourself paying an unnecessarily high premium. Instead, an all of market broker or a comparison website will be able to research the best deals, and may even be able to negotiate a special offer.
Covering too much
The most important part of buying life insurance is choosing the right amount of money to be paid out to your family in the event of your death. Whilst you may want to cover as large a sum as possible, this may not be realistic for your budget. Instead of plucking a figure out of thin air, consider your own circumstances. How much of your mortgage do you have left to pay? Do you have any outstanding credit card debts? Do your children go to private school? Perhaps you would like to leave enough money for them to go to university. Often, life insurance experts advise covering 10 times your income. If in doubt, speak to an FSA authorised expert to find out what you can afford to cover. The more money you want to be paid out, the higher the premiums will be.
Buying a joint policy
If you and your partner are both thinking of investing in life insurance, it can be tempting to invest in a joint policy which covers you together. Whilst this might seem like the easiest and cheapest option, it may not actually be the wisest in the long term. Often, it is no more expensive to buy two separate policies. And with two different plans, you will be guaranteed two cash payments, whereas with a joint policy your insurer will only pay out once on the death of the first person. In addition, you can tailor two policies to reflect the separate income of you and your partner. If leaving money to your family is important to you, two sums of money might be a better solution.
Not reviewing your cover
It is essential that you regularly review your life insurance to make sure you are still getting the best cover for your money. This is particularly important if you make any life changes or big decision. For example, if you quit smoking for over 12 months, you should contact your insurer. After 12 months tobacco free they will consider you a non-smoker, and it is likely that your premiums will reduce dramatically as a result. Other reasons for you to review your policy include buying a new house or having children. Both of these things may require you to increase your cover. In any case, it is sensible to regularly review the market on a life insurance comparison website- you may find a cheaper policy elsewhere. You may even want to consider income protection.
Not disclosing your medical history
When you apply for life insurance you will have to complete a medical questionnaire. If you have a complicated medical history, it may be that the insurer will increase your premiums to compensate for the extra risk. Regardless of this, you must disclose your full medical history. If you do not answer truthfully, your policy may become invalid in the future and your family will not get paid. The same applies for smoking. Smokers pay considerably more for their life insurance, but rather than lying about your smoking status it is better to be truthful than risk invalidating your cover.
