Almost no one trusts insurers and it’s not hard to see why. Policies are riddled with catches, clauses and exclusions. But that doesn’t mean it’s not important or you should let them win.
Protection and life cover is supposed to be a financial safety net to kick in when life throws its very worst at you and your family. But when it’s so easy to get caught out by a technicality buried in the small print, it’s easy to think that it’s simply not worth the bother.
This simply isn’t true – if you get the right policy and understand the cover, insurance can act as a vital lifeline to keep you or and your family going though the toughest of times. And you don’t have to pay through the teeth to get one that suits you.
Sadly, it seems that you can’t always count on insurers to guide you through the maze. So Yahoo! Finance has put together a list of tips to help you get the right protection in place for you and your family.
Sort out your priorities
Approximately five times more critical illness policies are sold than income protection, according to market analysis by Swiss Re. This is absurd.
Anyone who has a job gets a far wider scope of cover with income protection than critical illness. Critical illness pays out only when you are diagnosed with a serious illness from a list on the policy – about 30 conditions are typically covered.
Income protection pays out if you can’t work because of illness, which will include all of those listed by a critical illness policy and more. This policy will also cover stress – the most common cause for taking long-term sickness from work or accidents – and accidents, which critical illness won’t.
Arguably income protection is even more important to workers than life insurance. According to stats from insurer Liverpool Victoria, over the course of a working life, the chance of being off work for three months or more are one in five, whereas the chances of dying are much less – just one in 12.
Policies that just cover one bill are often poor value
When taking out a mortgage, many people are persuaded to get Mortgage Payment Protection Insurance (MPPI) that will cover repayments in the event that they can’t work because of accident or illness.
But if you can’t work, your mortgage is unlikely to be the only bill to worry about. If you’re spending the money on insurance to cover this scenario, think about an income protection policy, which will provide a payout to cover all bills – and it’s not likely to cost too much more.
Check the value of what you are buying
It’s alarming how many people buy protection without comparing the price with similar policies on the market. Not all products are the same and some are far more competitive than others.
If you know what you need, there are a number of online sites that allow you to compare polices, particularly for life insurance.
Watch out for catches
Here are some questions to ask when taking out protection: How long before a claim can be made? Is the premium guaranteed? How much and how long is the payout? What do I already get through the state or my job?
The deferment period determines how long you have longer you have to wait to get a payout on some protection policies, particularly income protection. Make sure you understand how long this is and also take into account how long it can take to process the claim once it has been made.
Some life policies have reviewable premiums or can change with age. You need to know whether this is an option.
Carefully consider how much cover or payout is suited to your circumstances by looking at your current budget for guidance. Take account of inflation where necessary. And remember to look at what you already get through work or state benefits.
When buying income protection insurance you should specifically check if it will pay out if you can’t do your own job. Some policies known as ‘any-occupation’ or task-based will only pay out if you can’t do any job at all – they can be significantly harder to claim upon.
The protection market can be overwhelming, if you are confused don’t leave it to chance to pick the right product, get advice. It’s important to choose a good Independent Financial Adviser (IFA), you can use vouchedfor to look at reviews and ratings to find someone who genuinely knows their stuff.
“We know from experience that when left to their own devices most people buy what they know and are comfortable with but may overlook and sometimes confuse with others protection plans that may actually be more appropriate. Therefore, it is important that people take advice in getting the right cover for their circumstances,” said Ian Smart, head of product development at insurer Bright Grey & Scottish Provident.
People put life cover as their most important insurance priority, according to insurance researcher The Syndicate, but up to 80% don’t properly understand how it works. Simply put: Life insurance pays out when you die. Some policies only pay out if you die within a certain timeframe, while others will payout when you die – regardless of when that is.
Here are a few myths:
- Joint policies are best for couples. In fact, two single policies will give you double the cover and the price is similar.
- Whole of life policies are the only option without a medical. These policies, often advertised on daytime TV, typically target people who have found it difficult to get life insurance previously, perhaps because of a history of serious illness. However, they often work out to be bad value because more money is paid in through premiums than the eventual payout. There are specialist advisers who can help find cover for people with a history of illness.
- You need to tell your insurer about changes to your personal circumstances. When you buy a life policy, the insurer judges your premiums based on an assessment of how likely you are to you are likely to die sooner or later. Factors such as health, age and lifestyle are taken into account. As long as you answer all questions truthfully, you don’t need to tell your insurer if things change down the line, for instance if you get a serious illness or start smoking.
And some facts:
- You must write your policy into trust. This sounds complicated but actually amounts to filling in a couple of forms that your life insurer should be able to provide. It’s important to do as it helps get money to your family quicker and can mean avoiding an inheritance tax on the payout.
- Tell your insurer everything. You might not think a minor trip to the doctor five years ago was important, but it’s always better to disclose too much information than not enough. Tell your insurer about any health issue you’ve ever had. Don’t risk a rejected claim because you failed to mention something small, assuming it wasn’t relevant.
- Protection is affordable. In the current climate of rising bills and stagnant wage rises, many people are feeling a budget squeeze. But protecting your finances should be a priority. You can get decent life policies from less than £10. If you shop around you and get the right product it shouldn’t cost the earth and could be the best investment you ever make.