There are many different types of life insurance available – term, whole of life, variable, universal, endowment, investment-linked, to name a few.
I am not going into the features and differences of each type in this post, so for now, I just need you to understand that there is more than one type of life insurance available.
So, it’s no wonder that the process of buying life insurance can seem confusing and intimidating.
In fact, a lack of clarity about life insurance is one of the main reasons why people end up putting it off.
So, I thought that I’d put together some ‘top tips’ to help you make the right decision when it comes to choosing the right life insurance.
1. Get Multiple Quotes
Make sure that you get multiple quotes that include all options and restrictions so that you understand exactly what is available.
It may seem like a tedious exercise and, well, it is.
But you need to be able to place a quote within the context of the market and you can’t do that if you only have one quote.
Insurance quotes shouldn’t vary hugely, but they can do, especially when the broker has commissions built into the price.
2. Get Expert Advice
Do not buy from any agent, adviser or organization that cannot fully explain what you are buying and how it meets your needs.
If they don’t fully understand what they’re selling you, how can you be sure that it is the right type of insurance for your financial planning needs?
You can’t. It’s just blind faith and you’re the hoping that the broker’s needs (getting commission from the sale) overlap with your needs.
And that’s not good enough.
I’ve seen it so many times where insurance salespeople try to push products that are not appropriate for the client’s situation, but do so anyway, because of the way they are remunerated.
I write a lot about this topic in other posts.
Related post: How To Choose A Financial Adviser
Related post: How Are Financial Advisers Paid?
3. Don’t Succumb To Pressure
Always remember that you are the client and do not ever feel bullied or pressured into purchasing something you are not sure about.
There is an old saying that life insurance is sold and not bought. And there is certainly an element of truth to that, because there is usually some form of emotional sell (i.e. think about what would happen to your family’s financial situation if you died tomorrow) involve in getting the client to sign on the dotted line.
And that’s fine – sometimes it helps to be reminded of the impact of poor financial planning within the context of our own loved ones. But if you feel you’re being pushed too hard, take a step back and take some time to think everything through and possibly get a second opinion.
Do not over-insure. The amount you need depends on what you want it to cover.
Of course, you need to have adequate coverage to ensure the financial well being of your dependents in the event of something happening, but you also need to have manageable premiums.
Otherwise, if they are too high, you may end up in a position where you are forced to let the policy lapse, which will then leave you unprotected and vulnerable.
5. Ask Questions
Once you find a firm/consultant you are comfortable with, ask questions.
Don’t feel embarrassed about asking questions. The more you ask, the clearer you will be on the options that are right for you, the easier it will be to agree on a policy that meets your requirements.
If you do not understand the answer the broker or adviser gives you, keep asking until you do understand. It is the job of the adviser to make sure you fully understand what you are buying. If they can’t answer the questions sufficiently, walk away. (Refer to Tip #2)
6. Check For Policy Changes
Remember to regularly check your policy for changes that may affect you or your family. Almost all insurance companies will send out notifications to explain changes they have made, so make sure you review them and take action if required.
7. Update Your Personal Changes
In addition to checking for changes in your policy, you should also make sure that personal circumstances don’t affect the conditions of the policy. A typical example of this is relocation.
Not all life insurance companies cover you outside the country where the policy was signed, so be sure to check.
8. Insurance May Be Essential
The mistake a lot of people make when considering life insurance is that they view it like an investment.
They think about the cost each year and how it is essentially ‘wasted’ if it is never claimed. However, that is the nature of insurance. It is not an investment – it is used to cover economic loss.
If you are financially able to afford life insurance, do not consider it as a luxury, but as a necessity. Instead, view your life insurance as a fixed, non-discretionary expense. Which is what it is.
Don’t Delay – Act Now!
So, to go back to the ’emotional sell’ mentioned earlier, ask yourself a simple question right now:
“If I die tomorrow, would that negatively impact on anyone financially?”
If the answer is, “Yes”, then you need to look at taking out a life insurance policy.
Life insurance is really one of those things that you should not procrastinate over, not just because it leaves your loved ones vulnerable, but also because the older you get, the more expensive it becomes and taking out an insurance policy when you are young allows you to lock in lower premiums.
So don’t delay – get on it today!
Some more great posts on Expat Financial Guy.