There are a few ways you can go about choosing life insurance in Australia. However, the process of selecting the best type – whether it be direct, through your Super or via broker – with all the right features for you, can be fraught if you’re not aware of the decision-making pitfalls.
5 Common Mistakes to Avoid
Not doing your research
There are a plethora of policies out there, so you shouldn’t settle for the first one you come across. Ensure you do some thorough research, or even talk to a few different agents, to find the policy that best suits your unique needs. Aspects that are important to consider as part of that research include your life stage, any major life events, your family size and requirements, and the premium structure of the policy.
Equally, if you make your decision in a vacuum or with the aid of someone who is motivated to only sell one type of product, you run the risk of making a choice between options that don’t serve you optimally. Taking the time to understand your options more holistically will mean that you’re not stuck with expensive regrets.
Choosing cost over policy value
Focusing only on cost has the potential to undermine the real value of any insurance policy. This is especially true of life insurance policies. So, if the cost of buying life insurance is enough to scare you away, remember that for most, it’s not something worth skimping on. That’s because its value lies in its purpose, which is, to protect the financial future of your family or beneficiaries.
You might be tempted to reduce your coverage amount in order to score a lower premium if your out-of-pocket expenses are seemingly the more immediate concern. In this case, you’ll need to think about whether the money you save initially is really worth the effect it could have later down the track. If you’re finding life insurance too pricey, take a look at your budget to figure out whether there are savings that can be made elsewhere, and avoid opting for less coverage than you actually need.
Not reading the Product Disclosure Statement (PDS)
As with most policies, it’s vital to read the PDS. This is an important legal document that contains all the information regarding your policy such as the life insurance product’s features, covers, exclusions, claims information, fees, benefits, risks and the complaints handling procedures. Some life insurance policies can be very complex, and the many types and providers on offer means they can vary widely in terms of their guarantees and features.
Waiting too long to buy
Life insurance is designed as a risk management tool and arguably delaying your purchase can lead to financial calamity. This is because the risk is often at its greatest when you are young and in the peak of your working life. Even if you’re in relatively good health, life insurance is typically more affordable the younger you are when you apply. Premiums will typically increase as you get older, so you should consider purchasing it as soon as you identify that you or your family would be at significant financial risk if you were to pass.
Life insurance is also generally not available after you are diagnosed with serious conditions, or is likely to be very expensive and have significant exclusions that undermine its benefit. One of the biggest mistakes people make when purchasing life insurance is thinking they buy it with money alone. Ultimately, you buy life insurance with your age and health. Time is of the essence!
Not purchasing cover for a non-working partner
It’s common for people to fail to consider life insurance for themselves or their partners, especially if they are a homemaker, stay-at-home parent or do not earn a significant wage. But have you ever sat down to crunch the numbers to determine exactly how much that is worth?
While you may not have to replace lost income, there may be other financial needs that arise as a result of the loss of this counterpart. This can include initial costs such as funeral expenses and time off work to adjust to life without your partner, as well as the many valuable tasks that would have been taken care of, such as child care and home maintenance. It’s worth factoring in the costs of paying someone else to do these jobs in the event of death, serious illness or injury, or total or permanent disability of a significant other.
Life insurance is an often overlooked yet incredibly important investment that anyone with loved ones who rely on them financially should investigate (while remembering the mistakes to avoid!). We know it can be unpleasant to think about your death, but planning ahead by taking out a policy can give you some peace of mind in knowing that your family will be financially secure in any event.
Disclaimer: The content of this blog is intended to provide a general guide to the subject matter. This blog should not be relied upon as legal, financial, accounting or tax advice.