Life insurance is a big decision, one that everyone should take at some stage in their life. Not only for the peace of mind that when you die you won’t leave your family struggling to cover the costs. But also as a possible investment for the future, you might need a little extra when you retire.
There are lots of things to consider when you take out a life insurance plan, below are just nine questions you should ask, and get detailed answers for before signing on the dotted line.
1. What is the premium ?
Obviously you are going to have to pay a premium for your life insurance, on a regular basis; usually monthly. You need to know what that premium is linked to. Is it linked to inflation, namely it will go up as the cost of living increases. Is it linked to your age, with a yearly review of the amount that needs to be paid, or is it static. You also need to find out if the premium can be changed by the Insurance company for any specific reason like you changing your address, or occupation.
2. What is the amount paid upon death ?
As with the premium, you need to know exactly what amount is going to be paid out in the event of your death. Is this also linked to inflation, or will it be static for the rest of your life ? (A two hundred thousand policy may sound good today, but how much is two hundred thousand going to be worth in forty years). Does the amount increase (and decrease) depending on the current rise and fall of investment value, are your family going to end up with nothing if the markets crash six months before you die?
3. Can it be cashed ?
A lot of policies only have a cash value at the time of your death, when your family get the amount you agreed upon when you took out the policy. Others have an investment value and can be cancelled in return for a percentage of that investment value (cashing in a policy). You need to find out if the money you are paying into your policy can be retrieved before your death, in the case of emergencies, or if your situation changes and you decide that you no longer want to continue the policy. Finding out forty years down the line that you cannot afford to continue paying for the policy, but also have no recourse to regain the money you have paid into it is not going to be a nice surprise.
4. Can it be transferred ?
Your life changes as you get older. You get married, have children, move jobs, and all sorts of other things. There may come a time when the insurance policy you took out when you were single and living in a little apartment is no longer appropriate for you and will want to change it. Does the insurance policy that you are about to sign allow you to change, and to move any monies you have paid into it to a new, better policy? Or are you going to have to scrap the policy, losing the money, and start a new one?
5. What will void the policy ?
All contracts have get-out clauses. Both for you, and the other party. Insurance policies are no exception. You need to look at the small print, or talk with your broker and find out what will void your life insurance. Generally there is 2 year contestability period and a 2 year suicide clause however the life insurance carrier can void a policy beyond 2 year for fraud.
6. Do I need a will as well ?
Most insurance forms include a page for beneficiaries. On this page you can list who you wish the final amount paid to in the event of your death. (You can even list multiple people with the appropriate percentage for each). The beneficiary page of you life insurance policy overrides your last will and testimony – you have signed a contract agreeing that in the event of your death the people listed will get the money. If no beneficiaries are listed, then yes you will need a will to dictate who the proceeds of your policy, together with the rest of your estate goes to.
7. Can I borrow against it ?
Some life insurance policies have a surrender value, but do not allow you to remove partial amounts from the policy (usually you would take a loan out from your policy, whether you plan to repay it or not, and the amount would be subtracted from the final payout). Some do. You may not have planned to remove any monies from your policy, but it is essential that you know if you can just in case an emergency crops up and you need to get your hands on some cash quickly.
8. Does it cover Medical ?
Life insurance is basically about paying out in the event of your death. But over the years what is offered by the insurance companies has changed in some cases if you are terminally ill the carrier will release a small portion of the death benefit while you are alive, however there is strict guide lines regarding the severity of the illness.
9. Will my details be checked ?
Some people want to buck the system to get a cheaper product, and nobody wants to admit to all of the little secrets in their lives (honest, I only smoke occasionally, coming from a twenty a day smoker is a prime example). Unfortunately, in the case of life insurance, you do have to admit to everything. Insurance companies may ask for a medical which will uncover your under-estimates, or in the event of a death will look at all of the conditions and reports surrounding your death before paying out. If you die, while partaking in your hobby of motor cross your insurance company is well within it rights to refuse to pay out if they were not informed of that particular hobby at the time of application.
Getting life insurance is important, and shouldn’t be too complicated. But given the fact that you are going to be paying for that policy probably for the rest of your life, you are well advised to sit down and have a good think about things you need to know before you commit to one. If you have asked the right questions, and are satisfied with the answers, then you can sign up and consign your policy to the back of your mind, fully aware of what it does, and doesn’t entail.