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Life Insurance

4 Mistakes to Avoid When Taking Out Life Insurance

30 Mar 2022

Life Insurance by Life Stage

The choices you make today can impact your long-term health, wealth and happiness. Understand the important role Life Insurance can play in key life events.

Buying adequate Life Insurance can be a significant decision for anyone. Take steps to make sure it’s well worth your money by preventing these common mistakes.

A lot of people believe that getting Life Insurance is not worth it. While that’s generally a mistaken belief, one could argue that it could indeed be the case.

You waste your money on Life Insurance only if you don’t take out the right policy or commit the sort of mistakes that result in you being inadequately covered.

When taking out a Life Insurance policy, being aware of some of the most common mistakes can go a long way towards helping you make the right choice.

You might also know that there are several types of Life Insurance products to choose from, but that’s only one of the many things that should concern you when shopping for Life Insurance products.

And knowing the following four mistakes will help put you on the right track in this regard.

Four Common Mistakes

1.    Underestimating Your Needs

Do not just come up with a number off the top of your head when determining the amount of death benefit needed for life cover. Instead, do your homework and base your Life Insurance cover amount on your specific situation. This means you have to consider a range of factors including the following:

  • Age
  • Life expectancy
  • Health
  • Debts and assets
  • Income

Those with a high asset-to-debt ratio (high total asset value compared to total debt) might decide they don’t need as much cover as those with more debt.

But with life cover you should also consider your beneficiaries’ life circumstances in the long run.

For example, you might have a non-working spouse and school-age children. If so, your Life Insurance cover would have to be higher if you want to provide for your spouse without an income and your children’s higher education.

Remember that stay-at-home spouses contribute lots of value. This is value in terms of housekeeping, child care, and other costs that a surviving spouse would have to account for as opposed to income.

Your Life Insurance amount should also be able to cover this. An easy way to give you a guide to how much you need to be covered for, is to use a Life Insurance calculator as a tool to help you think about how much cover you might need.

2.    Not Comparing Multiple Options

Life Insurance rates and premiums can vary by a lot from one insurer to another. If you want to find attractive Life Insurance rates, be prepared to shop around a little.

Ideally, you’ll want to get quotes from three or more Life Insurance companies at multiple levels of cover. You can also use comparison websites such as Canstar, and Finder, to give you more information when thinking about the best value product for you.

If you’re doing the comparisons yourself, remember to give the same information to all of the insurance companies that you contact so you can compare on the same basis.

3.    Waiting Too Long

What if you’re not happy with your Life Insurance quotes and wonder if you can afford to buy Life Insurance at all?

There are things that you can change to perhaps qualify for more affordable Life Insurance premiums, such as improving your health and quitting detrimental habits like smoking. But waiting is not one of them.

In fact, waiting too long might result in higher quotes. Age is a primary determinant of health risks, and if you’re older and considered a higher risk to Life Insurance companies, they will tend to offer you a higher premium.

A much better approach might be to figure out the Life Insurance cover that you need and then shop for a policy that works for your budget. However, be sure to carefully consider the features and limitations of each product – some may be less expensive but may not be a good fit for your needs or circumstances.

4.    Withholding Information from the Insurer

When you apply for Life Insurance, the Life Insurance company will often request the following at the least:

  • You and your family’s medical history
  • Your occupation
  • Your hobbies

All of these and more are needed for the underwriter of your Life Insurance policy to decide if they are willing to take on the risk that you present. And if so, at what cost – how much should they charge you?

You may be tempted to brush over certain lifestyle habits or health issues here or there to qualify for lower rates, but you can rest assured that Life Insurance companies will do their due diligence and verify the information, such as asking you to release your medical records.

If they suspect that you might have withheld some information, they could require you to get a medical examination for confirmation. Insurers, in fact, can deny your application based on dishonesty.

Even if you’re able to pass all of this and purchase a policy based on inaccurate info, this will come up again when your beneficiaries lodge a claim later on.

Make no mistake, insurance claim investigators are even more thorough. And if it’s found that a policyholder’s death had to do with withheld information, it might be within an insurer’s right to deny the claim. Always make sure that when apply for insurance, you answer the insurer’s questions fully and honestly. It’s important that you meet your legal duty not to make a misrepresentation.

Getting the Protection You Deserve

So, how do you get the most appropriate Life Insurance cover and rates for you?

The first step is to understand how much cover is needed to protect your family in the event that something happens to you before your time. This will require you to consider your and your family’s lifestyle, habits, and assets, amongst other factors.

And if you’re trying to save on Life Insurance premiums, you will want to start early, rather than waiting to make more money as you progress in your profession. The rates will often go up with your age, as an older you presents more risk to Life Insurance companies.

Taking out life insurance may be one of the most important financial decisions you can make. To find out more or get a quote, call a NobleOak Life Australian-based insurance specialist on 1300 014 494 or go online for a no-obligation quote.

This is general information only and does not take into consideration your individual circumstances, objectives, financial situation, or needs.







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