Arranging life insurance is a little more involved than arranging car insurance - however, it is a single-time activity that can have a lot of impact on your family's future health and happiness. There are a few simple steps to getting your life cover right - calculate your benefit amount, get quotes, look at the PDS and insurance contract and select your insurer ... and then simply pay your premium! However, there are some common assumptions that people make that can result in a far from ideal result ... today we check out 6 more of those common mistakes with life policies.
1. Not insuring or undervaluing a non-working spouse
Many people assume there is no point insuring the life of someone who doesn't contribute financially to the household ... forgetting that non-working spouses actually contribute a great deal! Life cover for a non-working spouse should cover childcare bills, the cost of hired household help, take away meals, gardening etc. If it doesn't, the surviving partner will have stress levels through the roof while grieving and will eventually need to cut back their working hours to better cope.
2. Glossing over the question of stepped or level premiums
Many people choose stepped premiums for their life policy, because level premiums are far too expensive in the early years while you still have children and a mortgage. However, you need to remember that your policy will eventually become a sizeable bill, just at the time when you've retired and have little money, but are closest to collecting the benefit.
3. 'Satisficing' with your life insurance policy
Some decisions in life work best for 'satisficers' - those who go with the first available decent option. However, life cover should be a lifetime commitment! It's worth spending the time to review a wide selection of companies, not just the first two.
4. Allowing 'sticker shock' to stop you getting life insurance
Yes, life cover is a significant bill each year; you can't quite cover it by giving up one weekly cup of coffee. However, life cover has immense value to your family ... and the best things in life certainly aren't free!
5. Not completing the application yourself
Many families have one partner that is the 'paperwork partner', responsible for filling out forms and that sort of official business. However, application questionnaires get personal - very personal! Given the gravity of the consequences if somebody else fills out your form and it isn't quite right, it is essential that you be highly involved in filling out your own application. This is important because you need to satisfy the insurer's 'Duty of Disclosure' when completing the application for a life policy.
6. Contributing to life insurance at the expense of superannuation
These two financial products are equally important, but very much separate contributions to your and your family's lifestyle in the future. There are different tax advantages with each, and it is smart to devise an investment strategy that allows you to maximize your contributions to both. Doing this rather than trading off between life cover or superannuation will generally create the best outcome for your lifestyle.
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