You take out life cover. You die. Your family receives a lump sum payment. Pretty basic really. So, who really needs life insurance advice? Well, it may not be as simple as you think…
Life insurance is pretty straightforward, isn’t it? For all practical intents and purposes, it’s a commodity in which price is the key factor. You die, your family receives a lump sum payment. Pretty basic really. That’s exactly what I thought when I first took out life cover after the birth of my first child 12 years ago.
I didn’t seek life insurance advice… I asked the broker for the cheapest cover, filed the policy in our important documents folder and thought little about it. Many people I speak to today think the same as I did. BUT having worked in this financial advice industry for over 10 years I now know it actually isn’t quite that simple. On the contrary, it is a potential minefield in which many things can go wrong… and this is where a good insurance adviser is worth their weight in gold.
Take the following scenario:
24 hours from now you’re dead!… It starts with a vague headache during your lunch break at the office. By the time you leave work, that ‘vague’ headache has become what feels like someone is hammering the inside of your skull – with a jack-hammer… You get home and take yourself off to bed. ¥ou lie down and drift into sleep… but you don’t wake up… ever!
This is a pretty unpleasant thought, but stay with me for a bit… If this were to happen to you tonight, how would your family cope financially? Would they be able to pay for your funeral or the ongoing household bills? How long would they be able to go on living in the house. Oh, by the way you also run a small business. Could your business survive without you long enough to find a buyer? Or would it have to be put into voluntary liquidation or worse still receivership?
No problem, you say. The $500,000 life insurance cover you bought over the phone 5 years ago would pay out, the mortgage would be paid off, your business partner would continue to run the business until a buyer could be found and your family wouldn’t have to worry about money for the next 10 years, at least…
Let’s just stop here for a bit and check some of these assumptions. How can you be sure that the insurance will pay out? And if it does, will it go to the parties who need it, when they need it? And will it cover everything you need it to?
On reading that last paragraph, did you experience just a slight sense of unease? Some nagging feeling that, perhaps you need to check the details of the life cover you have in place today?
In this article, I am going to explore some not uncommon problems which can arise when taking a DIY approach to life insurance… and which suggest you should at least consider seeking life insurance advice from a professional.
Let’s take a look at each of the questions we raised above:
Question 1 – how can you be sure the insurance will pay out?
Life insurance is pretty straightforward. You die, the insurance pays out.
In our example, you bought your insurance over the phone, quite possibly via a telemarketing service one evening while you were trying to cook dinner for the family. One of the primary reasons you bought the policy was because it was quick, cheap and didn’t require you to fill out a whole ton of forms including medical declaration.
Warning bells should be sounding here… this sounds like accidental death cover only. If that is the case, your aneurism wouldn’t have been covered and the insurer wouldn’t pay out on the policy.
This is just one example of where a policy may not payout. Here are a couple of others assuming you do have full cover:
Question 2. Will it go to the parties who need it?
The effectiveness of your life insurance policy very much depends on ownership and your estate planning provisions.
Question 3. When they need it?
If you own the policy in your own name, the proceeds from the policy will be paid directly into your estate.
Question 4. Will it cover everything you need it to?
When was the last time your checked your life insurance cover…..will it cover everything you need it to?
Hopefully, we’ve got you thinking… about how important it is to make sure the life insurance you have in place will work as you need it to when you need it to – at claim time. To summarise:
IMPORTANT PLEASE READ: This article is for information purposes only. Its content is intended to be of a general nature, does not take into account your financial situation or goals, and is not a personalised financial adviser service under the Financial Advisers Act 2008. It is recommended you seek advice from a financial adviser which takes into account your individual circumstances before you acquire a financial product. If you wish to consult a Financial Adviser, please use our “find an adviser” database.