18 February 2020
If your life insurance policy is in a drawer gathering dust, it’s probably time to review your insurance cover. But before you do, we’ve outlined some pitfalls to avoid so you or your family don’t get a nasty shock in the event of a claim.
1. Buying on price rather than cover
No-one wants to pay too much for insurance cover but the main purpose of buying life insurance is to safeguard your family, so they won’t be left to fend for themselves in the event of a traumatic incident, or even worse, your death.
Cheap policies can be riddled with potential issues, so read the fine print and investigate:
- The capacity of the insurer to pay
- The policy exclusions
- The dispute handling processes
It is also important to consider the purpose of the cover and if what you’re purchasing meets this purpose.
2. Not considering insurance outside superannuation
Many people make the mistake of thinking life insurance cover through their superannuation fund will be enough. But some super funds tend to provide a default level of cover that is often well below the level required.
It is important to keep track of your cover through your super fund. In July 2019, the Federal Government implemented Protecting Your Super Package legislation (PYSP). This legislation may see your cover lapse if you:
- Haven't opted into your insurance cover
- Have a balance below $6,000
- Haven't had contributions in the previous 16 months
It’s also important to remember premiums are paid from what may effectively be your retirement savings, which can impact your overall super balance at retirement. Additionally, when you begin drawing down on your savings, there may be restrictions on your cover.
3. Failing to obtain proper advice
Life insurance policies are easy to obtain these days and it can be tempting to buy policies online or from day-time television.
However, policies that are quick and simple to obtain may be declined at claim time for reasons such as non-disclosure, pre-existing exclusions or hidden clauses.
Sitting down with a qualified adviser means you can benefit from comprehensive advice on a broad range of policies that can be tailored to your individual requirements.
The adviser will also discuss issues you may not have thought of. For example, will your insurance policy be owned by you, your spouse, both of you, your super fund, or a trust or corporate entity?
Your adviser will also be able to help advise you on potential tax implications arising from these decisions.
4. Failing to review cover when circumstances change
There are certain key events in life when it is imperative to take a fresh look at your insurance coverage:
- Have you married or divorced or has your spouse passed away since you last reviewed your policy?
- Have you become a parent or have your kids left home?
- Have there been any changes in your financial circumstances such as an increase in income, more debt or paying off a mortgage?
All these are factors to consider when determining the level of cover you require.
No-one wants their families to be left high and dry in the event of their death or disablement. Taking the time to consider your life insurance today may be your greatest gift to your loved ones tomorrow.
For a comprehensive review of your insurance cover, contact the Findex Wealth Management team.