Life Insurance Basics
Choosing The Right Policy
The Application Process
The Nuts & Bolts of Life Insurance
What and why.
In short: When you take out a life insurance policy, your insurer agrees to pay out a lump sum to your spouse, family or chosen beneficiaries in the event of your death.
What can it cover?
Your life insurance pay-out can ease the burden on those you love by providing funds for:
Why is it a smart buy?
Life insurance is a guarantee that you will leave something behind for your family, regardless of any other assets or inheritance. Of course, no amount of money can make up for the loss of a loved one, but it is a sure-fire way of relieving the unwelcome financial pressures that often follow in the wake of a family death.
A basic term policy could cost you as little as $10 a month (less than you spend on food or the phone bill) and your lump sum will be tax free (what’s tax free these days?), so every penny will go towards securing your family’s future. When you look at it like that, it’s a no-brainer.
A Buyer’s Guide
From purchase to claim.
It’s easy to feel like you’re in over your head when you start comparing policies, and before you know it you’re drowning in documentation, technicalities, terms and conditions. But don’t panic! Take a few deep breaths and follow our 5 step process from purchase to claim:
1. Assess Your Needs
First things first: start by working out what kind of coverage you actually need. Being clear and confident on this will help you avoid the trap of either paying over the odds, or getting stung because you’re not fully covered. Our needs analysis calculator will help you pin this down in just a few minutes.
2. Compare Policies
Now you know what level of coverage you’re looking for, you can start comparing similar policies from different insurers. It’s best to use an independent broker like Insurmi because we don’t have any conflicting interests and won’t push you towards a particular policy. Our free, instant quote comparison service is designed to make this a breeze!
When you apply for a policy, your insurer will want to look into your health and life circumstances in order to work out exactly how much you should be paying. This can feel overwhelming, but you can check out our guide to the application process so that you know what to expect. Once your application has been approved, you’ll sign the policy and pay your first instalment.
Life isn’t static and circumstances change. If you have a baby or get a mortgage, for example, this is likely to significantly impact the level of coverage you need. It’s wise to review your financial situation every three years to make sure that your policy still has you fully covered (and also so that you don’t find yourself over-insured!). With some policies, you can add more coverage without having to re-apply.
A term policy will come to an end after the agreed time period. Hopefully, you will no longer need life insurance at this point because you’ve built up your own savings over the years and/or you don’t have any significant financial obligations anymore (you’ve paid off your mortgage, or your children are no longer dependent on you, for example). If you fail to pay the premium at any point during the agreed term, your insurer will cancel your policy. If you die before the term comes to an end, your insurer will pay the full lump sum to your named beneficiary.
Choosing Your Policy
Some top tips.
Based on our years of experience in all things life insurance-related, these are our tips for getting the right coverage at the right price.
Go for a term policy
This is the simplest and most affordable option for basic life insurance cover and is the smartest choice for most people. Many term policies also include the option of converting to a permanent policy further down the line.
Commit to at least 5 years
Life insurance premiums are likely to increase with each renewal, and as you get older, so it makes sense to invest in a policy that will last as long as you need it to. For example, think about how many years are left on your mortgage or student loan repayments.
Choose a steady premium
It can be tempting to go for a policy that offers lower premiums at first, with increases over time. But it’s risky to make assumptions about your future financial situation, and it’s a lot easier to plan ahead if you know that your premium will be steady. Our advice is to choose a policy that offers a “guaranteed level premium”. That way, you know where you stand.
Do your homework
As well as getting in the know about policies, it’s important that you check out the company you’re thinking of getting insured with before you commit. Look into their financial rating, their reputation and their experience before you sign a contract with them. It’s just good sense.
Cover your own back
Once you’ve signed the contract, you should be able to trust that your insurer isn’t going to make any unexpected changes, as long as you keep up your end of the deal. To be sure that this is the case, choose an “entire contract” policy, so that your premiums are based solely on the information you provided at the application stage.
Check for a grace period
Sometimes mistakes happen or payments get overlooked. Make sure that your policy includes a window for premium payments to be made (usually up to 30 days after the payment was due) so that your insurer doesn’t suddenly cancel your cover.
Give yourself flexibility
Your needs will change over time, so it’s best to buy a policy that allows you to make changes to your level of coverage without having to go through the whole application process and medical examination again. Insurers call this “guaranteed renewability” or “guaranteed insurability”.
Don’t be pressurized
Avoid agents who try to push you into committing before you’re ready, or before you’ve fully got to grips with the details of the policy. It’s best to work with an independent broker who will take the time to talk you through the differences between the policies and help you find the one that best suits you.
You’re not for sale!
If an agent or insurance company asks for your contact details before showing you your quotes, this should set off a few alarm bells! They’re likely to sell these details on to third parties and you’ll find yourself constantly fielding calls from sales people.
What to expect.
You’ve chosen your policy and are ready to apply. So what happens next?
It’s common for the full application process to take 3-4 weeks, so it’s best to know what to expect at each stage. Let us walk you through it…
1. Your Application
Typically, you will need to submit the following to your insurer:
2. Health Check
When your insurer receives your application, they will contact you to schedule a medical exam. This sounds worse than it is, honest! You choose the time and place and a paramedical technician will meet you to run a quick health check, measuring things like height, weight, blood pressure and pulse. This usually lasts about half an hour. The results will be looked over by the insurer’s underwriters, and they will request further information from your physician if they need to.
3. Phone Interview
Again, you choose the date and time, and a representative will call you for a 20 minute chat about your lifestyle and circumstances, hobbies and health. You should receive a list of the questions in advance, so you can be prepared with all of the necessary information.
4. Final Checks and Approval
All of the information from the medical exam and phone interview will be sent to the insurer’s underwriters for thorough checks and final approval. This is the part of the process that can take a bit of time (often 2-4 weeks), but you don’t need to do anything unless the insurer contacts you for more information or clarification.
5. You’re Good to Go!
If the underwriters are happy and your application is approved, the insurer will let you know and you will need to make your first payment to activate your cover. When your policy is delivered to you, make sure that you store it somewhere safe, and that your beneficiary also knows where to find it.