Common mistakes can leave family members in the lurch
The following is taken from a recent NZ Herald article. It highlights some of the common mistakes Kiwis makes when choosing life insurance – which will hopefully help with your client meetings.
Life insurance is generally something that comes up because of an event, such as getting a mortgage or having children.
Do you have life insurance? Unless you’re single and don’t care what happens to your body and debts when you die, then you probably need some and possibly quite a lot of insurance cover.
The problem is, says David Boyle, general manager of investor education at the Commission for Financial Capability: “People don’t wake up and think, ‘I need to buy some life insurance today’.”
“Life insurance is generally something that comes up because of an event, such as getting a mortgage or having children. It’s very easy in those circumstances to make mistakes. I decided to look at the six biggest life insurance mistakes Kiwis make and ask industry players to explain them”:
1. Not taking out life insurance or putting it off
It’s better to have insurance and not need it, than to need it and not have it. Not buying it at all can leave your loved ones in the proverbial.
Putting it off means that when you finally do want insurance, you may not be able to get it because of your unhealthy lifestyle or you may find you’re saddled with numerous exclusions.
2. Buying too little
Losing the family home is the worst-case scenario that must be avoided. It’s common to take a stab in the dark when deciding what level of cover to buy. Or we base it on what we can afford to pay.
3. Not insuring your spouse
Think about all the scenarios that could affect you and your family and make sure you have a plan in place, says an expert.
Your ability to earn can be affected by the non-working spouse dying or falling seriously ill, especially if there are children. You might need to take time off work and there are costs such as childcare.
Chris Lamers, Head of Marketing and Innovation at Sovereign, says: “As you develop your ‘what if’ plan, it’s important to consider a few scenarios. Often people look at what they would do if the main income earner couldn’t work for a period of time, or passed on. But often there is a significant impact if someone else in the household is seriously ill, or in the worst case, passes on. The main income earner may be required or wish to take time off to care for the person or for the rest of the family.
“As an example, someone told me recently of a full-time mother who got breast cancer. Obviously, this is a traumatic time for any family, but it became even more difficult because the main income earner couldn’t afford to take time off work to care for his wife and children. Even a trip to hospital with his wife became a problem. One solution would have been for the wife to have had a life or trauma insurance policy.
“The lesson here is to think about all the scenarios that could affect you and your family and make sure you have a plan in place.”
4. Failing to consider ‘extras’
Check what add-on benefits are available with a policy and consider whether you need them.
You’re much more likely to suffer illness than die. Some insurance policies cover you for far more than death. They may have extras or related insurances that cover you for income protection, trauma insurance and disablement.
5. Not reviewing your policy
Picked up a new hobby? It’s time to review your policy. Your circumstances can change and insurance policies evolve.
6. Buying on price
Comparing life insurance quotes is notoriously difficult. It’s very easy to be comparing oranges with apples and not realise it. One policy might pay out on terminal illness and another on death only.
Another factor to consider is who a claim will be paid out to. Will the pay-out go to your spouse or a trust, in order to pay off a mortgage? Wills and trusts are also worth thinking about at the same time as you’re shopping for life insurance.
This is an extract from the full article published in the Herald on 1st Aug; click here for the article
If any of these issues have raised a flag for you please contact me so we can discuss a solution that fits your budget.