22 May Live your life
No insurance is like not having a parachute when you need it; chances are you will never need it again. Just because you already have life insurance doesn’t mean you can ignore it. And in tough times, resist the urge to cut that cost from your monthly budget, advises Apio’s Mike Wood.
Have you just bought a new property, changed jobs, gotten married or divorced, quit smoking or received some upsetting news about your health? Do you have an estate worth more than R3.5m (more than R7m if you are married)? It might be the last thing on your mind, but updating your life insurance policy is a necessary detail to complete.
It’s so easy to overlook – after all, you’re busy living your life, so why would you consider letting your insurer know about changes to your personal circumstances, like a new job or a new marriage? However, revisiting your life cover is something you should diarise to do annually.
The ideal time to invest in life insurance, income protection and dread disease cover is when you’re young and healthy and premiums are affordable. However, it’s certainly not a “one and done” action. When you’re young, you likely don’t have many assets, and will probably prioritise investing, having low life cover, income protection and dread disease cover in place. When you start acquiring assets (and getting older), revisit your cover to make sure it’s still appropriate for your life stage and age.
Have you considered life cover which reduces over time in line with outstanding debts such as your mortgage bond or car debt it serves to cover? Considering this can save huge amounts in premium and ensuring you do not spend excess money on insurance which may not be necessary. Appropriate financial and estate planning can be key to unlocking value in your overall portfolio and may allow you to rather use the savings in premiums to settle debt at a quicker rate which will erode the need for a portion of your life insurance altogether.
Another time to relook your cover is when you want to change beneficiaries, for example, when you get married or have a baby. A valid will and estate planning should all be reviewed to make sure your cover is appropriate.
One national insurer was in the headlines for all the wrong reasons last year when it declined to pay out a death benefit because of an undisclosed diagnosis of diabetes. The insurer in question did eventually pay out, but only in the face of persistent negative media coverage, and because the deceased was a victim of violent crime unrelated to the non-disclosure.
Honesty with your insurer is essential – don’t lie about risks that will impact the cost of your cover, whether it’s withholding information during the underwriting process, or later on when your circumstances change. Hiding key information could negatively affect your beneficiaries once you’re gone. If you receive a health update with long-term consequences, for example a chronic illness like diabetes or a heart condition, the onus is on you to disclose that to your life insurer or run the risk of having a death benefit denied because of non-disclosure. The reverse is true too. If you give up smoking, this could positively affect your life cover.
Some are lucky enough to receive life insurance benefits from their employer. If you’re one of those, your broker can help you assess your total cover to make sure you’re not over-insured. However, don’t take it for granted – the likelihood of working in the same company for the rest of your career is far lower than it was for our parents and grandparents. Take some time to consider what might happen if you leave your job. Is your work-related cover the only cover you have? How hard would it be to get new life cover if you needed it?
We all know that the economy is extremely tight, and when you’re looking to trim your monthly costs, it can be tempting to simply put a line through the item for life insurance. It’s important to think very hard about the short-term savings versus long-term benefit. If you decide to cancel, but then look to take up a life insurance policy at a later date, it will be considerably more expensive, and if you’re in poor health, you might even be declined for cover.
It’s easy enough to fill in an online form and sign up for life insurance, but a professional adviser looks at the bigger picture to ensure that you have the right cover in place to foresee all eventualities.