A life insurance policy can significantly impact the financial future of your loved ones by providing a pay-out that secures their financial well-being after you’re gone. However, taking out a life insurance policy is a big decision, one that requires careful consideration. It’s essential to ensure that you select a policy from a trustworthy insurer, choose an appropriate and affordable sum assured and premium, and consider other important factors. Here’s a breakdown of what you need to think about when purchasing life insurance.
1. Work Out How Much Cover You Need
Before committing to any financial product, the first step is to determine if it meets your financial needs. Life insurance is designed to cover the financial shortfall that arises when an income earner passes away.
To figure out how much life insurance you need, start by listing those who depend on your income, and evaluate what they would need to maintain their lifestyle when you’re no longer able to provide for them. This includes immediate family members, dependents, and even extended relatives or friends who rely on you for financial support, or for services like transport, babysitting, cooking, or cleaning. If you support anyone financially, it’s vital to have life insurance. You can use life insurance calculators or consult a financial adviser to determine the right amount of cover for your specific needs.
2. Research, Compare, and Select Insurers
Once you know why you need life cover and how much you need, the next step is to select an insurer. Begin by researching life insurance providers and requesting quotes based on the amount of coverage you require. Comparing quotes from different providers will help you assess the premiums and ensure you choose the right policy.
Tips for Choosing a Trustworthy Insurer:
- Check registration: Ensure the insurer is registered with the Financial Sector Conduct Authority (FSCA). This guarantees they comply with industry regulations and provides recourse if they fail to meet their obligations.
- Review their product offerings: Visit the insurer’s website to see if they provide flexible products that can be customized to meet your specific needs.
- Understand the claims process: Research how claims are processed, the average time it takes, reasons claims could be declined, and the required documentation.
- Assess communication practices: Ask how the insurer communicates with clients (e.g., email, call centers) and how often.
- Evaluate clarity: Check if their FAQs, product guides, and terms and conditions explain insurance terminology clearly in plain language.
- Look for a complaints resolution process: Ensure that a documented complaints procedure is available.
- Digital management options: Confirm that policies can be updated and managed online for convenience.
- Additional benefits: Inquire about extra benefits such as free financial literacy courses, legal assistance, or rewards programs, which can enhance the value of your life insurance.
3. Getting Quotes
Getting a quote is an essential step in choosing life insurance, as it helps you evaluate the premiums and benefits that match your needs. Many reputable insurers provide online quotes based on basic information such as your age, gender, and whether or not you smoke. Remember, however, that a quote is only an estimate and is valid for a limited time. It is based on general information and may change once the insurer assesses more detailed factors, including your health.
4. Comparing Quotes
When comparing quotes, it’s crucial to compare like with like. Different insurers may offer quotes that include varying levels of coverage or benefits, so ensure you are comparing policies with similar terms.
It’s easy to focus solely on the premium amount, but it’s equally important to examine the sum assured and the benefits included. Additionally, pay attention to how premium increases are handled. Premiums can be flat (no increase), increase annually in line with inflation, or rise based on your age (known as age-rated premiums). Flat premiums may be higher initially but could result in lower premiums as you age, while age-rated premiums may start lower but increase over time. Be sure that any quotes, insurers, or financial advisers clearly explain how premium increases will work so you can make an informed comparison.
5. Making a Decision
Take your time to evaluate the quotes, ask all the questions you need answered, and ensure you fully understand the policy terms before making your decision. Once you’re satisfied, select the insurer that best fits your needs and apply for the cover. You can usually apply online, by phone, or with the help of a financial adviser. Be sure to answer all questions on the application accurately and completely—this is crucial for your coverage.
6. Choose Your Beneficiaries
The beneficiaries of your life insurance policy are the individuals who will receive the pay-out in the event of a valid claim. Choosing the right beneficiaries is one of the most important steps in taking out life insurance.
Tips for Choosing Beneficiaries:
- Name an individual: While it’s possible to name an estate or trust, choosing a person is more straightforward and efficient.
- Select an adult beneficiary: Minor children cannot legally receive an inheritance until they turn 18. If you wish to name a minor child as a beneficiary, you’ll need to set up a trust to manage the pay-out, or the money will be placed in the Guardians Fund until they reach adulthood.
- Choose a responsible person: Ensure that the beneficiary can use the pay-out as intended, whether it’s for covering living expenses or paying off debts.
Be sure to provide your beneficiaries’ full names, ID numbers, and contact details on your application form. It’s also helpful to discuss your policy with your beneficiaries, so they know how to claim and understand why you selected them.
7. Get Underwritten
Once you’ve completed your application, the insurer will underwrite your policy. This process involves assessing your risk factors, such as your age, health, occupation, and gender, to determine the premium and coverage for your policy.
Underwriters use this information to calculate your life expectancy and decide how much of a risk they are taking on. Ensure that you answer all questions truthfully and completely—failure to disclose important information (such as pre-existing health conditions) could result in your policy being invalid or your claim being reduced or declined. You may also be asked to undergo medical tests, such as blood pressure checks, HIV tests, or blood glucose tests.
8. Get Your Contract and Start Paying Premiums
You’re almost done! After applying, selecting your beneficiary, and undergoing underwriting, you’ll receive your policy contract. The insurer will email you the contract, which you should keep for your records. You should also be able to access your policy details online.
Once you’ve reviewed and accepted the terms, it’s time to start paying your premiums. Your insurer will provide the payment schedule, so ensure there are enough funds in your bank account to cover the premium on the due dates. You should also confirm that your premium payments are set up through DebiCheck, a secure system that ensures reliable and accurate debit orders.
By following these steps, you’ve secured life insurance that can provide your loved ones with financial stability. Don’t forget to regularly review your policy to ensure it continues to meet your needs as your circumstances change. Keep paying your premiums, and rest easy knowing that you’ve taken a critical step in protecting the financial future of your family.
