Secrets from an insider
‘Life Cover’ is probably one of the major grudge purchases a working age adult will make, and once you start adding other benefits it can become really pricey. Here are some hints and tips so you can make sure you’re getting what you expect, without paying the earth now – or in the future.
‘Life Cover’ insurance is made up of 3 major components – Life, Disability and Dread Disease but is all classified as ‘life’ cover because the insurance company has to have a ‘life license’ to offer them.. There are a few ancillary benefits like funeral cover, retrenchment cover etc., but these are all still classified as ‘Life Cover’. This might sound like semantics but some gap covers have fallen foul of this definition and are having to remove ‘life’ benefits like cancer lump sums.
Actual ‘life cover’ – cover that pays out if you die, need not be for life. If you take it for a defined period (called ‘termed cover’) and not for life you will be able to save money. First prize is if you can increase this without underwriting at a later stage if you still need it.
At the very core Life cover should cover your debts, liabilities plus the cost of getting your children financially independent. If you have agreed to allow your life partner to be a financial dependant on you for life, then his/her costs for the rest of their life needs to be factored in too (and you may need cover ‘for life’.) If you don’t keep on increasing your debt (smart), life cover should decrease and not increase every year.
Life cover is pretty simple, either you’re dead or you aren’t. Dread disease is slightly more difficult but there are now global standards of severity. Disability is a nightmare – be very careful which provider you choose. (Use an Independent Financial advisor who can get you a variety of quotes from different providers).
It is possible, in fact often preferable, to use different providers for the different ‘life’ benefits so that you get the ‘best of breed’.
Life cover can be bought purely on cost, as long as there are no nasty surprises in small print (read the general and specific exclusions paragraph carefully before signing.) When getting comparative quotes ask for projected premium increases on level or age-rated premiums and compare them side by side or graph them. The differences will shock you. By all means get a quote from a call centre life company – their premiums are usually a good 20% above the lowest premium from one of the big providers (and almost always age rated). Someone has to pay for all those TV ads – don’t make it you. Always get a comparative quote if you’ve decided to DIY and read all the small print and graphically plot the premium increases.
If you’re lured by the ‘cash back’ promises of some Life companies be aware that this is not free. Get a quote before and after the ‘cash back’ and compare it to investing the money yourself. Remember, if you cancel the cover or have to claim you lose that benefit, if you’ve invested it you won’t.