It’s very expensive being alive. But it seems planning around death can also be costly. While you certainly want to ensure your loved ones are taken care of in the best possible way should you die, you don’t want that monthly life insurance commitment to impinge negatively on the life you are living now. So how do you get the best outcome on your policy while at the same time reducing monthly expenses without changing the way you live?
Keep it necessary
Firstly, always review your insurance policies as a whole. It’s good to evaluate what you’re paying for with regard to all your policies on an annual basis. You may find that you have too many life insurance policies or you are paying for too much coverage, which significantly increases your costs. It’s important to analyse the support your family will need should your life cease, but there’s no reason to be paying for more coverage than will be needed.
Your cover should encompass paying off your bond, any outstanding debts, and provide for your family so that they are able to retain their quality of life. Once you have these calculations in hand, you need to multiply this amount by 10 or 20 – and that should be the amount you insure for. This will depend on the amount of your debt and the number of children you have, as well as their educational financial needs. With this in mind, you will need to make adjustments depending on what you can afford at present for the monthly premiums.
Firstly, look to see if your policy is loaded with extras that you don’t want or need. These are called riders and may be automatically attached to your policy, and for which you will be paying extra. Check to see if you need these riders, and if you aren’t already covered for them possibly in your employee benefits package. The riders can cover as follows:
Accidental Death Benefit: If you die by accident, then the pay-out will be automatically increased.
Waiver of Premium Rider: Should you become disabled for any reason, you will no longer have to pay the life insurance premiums.
Disability Income Rider: This one offers an income support should you become disabled before the life policy is matured.
Accelerated Death Benefit Rider: If you become terminally ill, you can collect some of your life insurance proceeds thus far accrued.
Pointers that are good to know before making decisions
- Get your life insurance policy set up as young as you can. The younger you are, and the healthier you are, the lower your premiums will be. Beginning early is hugely advantageous.
- If you are unhealthy, overweight, a smoker, then you are likely to carry higher premiums. Get into shape, take care of your health, present a more robust figure to the insurer and you are very likely to negotiate a reduced premium based on the fact that you have significantly lowered your risk profile. Being in poor health and overweight increases your chances of an earlier death due to diabetes, heart disease, stroke, high blood pressure, etc. And insurance companies certainly prefer not to pay out large life insurance sums before you have paid most of your premiums.
- Just as making any purchase of any product, you have to do your homework first and shop around. There are many policies from various companies that will offer the same terms at different prices. Find a policy that suits your needs and your pocket. Make sure you’re comparing like policies with like terms. A lower premium is not necessarily the whole package, because there may be exclusions on one policy that you may not be happy with.
- The kind of cover you choose will affect how much you pay. Whole of life insurance is the most expensive cover to take out, because it will inevitably pay out at some point. However, if you take out term insurance instead, then you’re only covered for the duration of the policy. The price will be set according to the risk of the insurer having to pay out. Most people choose the latter because they only need the cover for a specific time, such as while children are being educated or until the house has been paid off.
- Decide on the type of premiums you will pay. There are usually two options offered: ‘guaranteed’ or ‘reviewable’. Initially Reviewable premiums may be cheaper, but they tend to fluctuate over the duration of the policy, and will take into account your age and state of health, which means they could end up costing more than a ‘guaranteed’ premium. The guaranteed premium means that the insurer guarantees not to change the premium price over the entire time length of the policy.
- Investigate the length of term of the policy. Obviously the longer the term, the more you will pay. But you may find that certain expenses have been cleared in less time than expected, and the policy is no longer needed to cover those particular commitments, and therefore can be reduced. For instance, you may have paid off your house, or your children are finally ending their education and leaving home. This means you may only have your wife to think about and the size of the insurance may not need to be as taxing financially as before. You could therefore arrange to lower both the premiums and the sum insured – or you can arrange a decreasing term life insurance policy – cover that will last a defined period but with a lower pay-out as each year passes, meaning your premiums diminish as well.
- Enquire whether there are benefits offered should you reach a certain level of payments. Some policies offer lower premiums as reward for consistent payment over a defined period of time.
- As a couple, perhaps before you have children and you are both working, you can take out a joint policy. There’s less risk of costly pay-out, which means your premiums will be lower. A joint policy should be cheaper and more convenient to arrange than two individual ones, but it will only pay out once, something you need to consider if you intend having children. And problems could arise should you split up as a couple. Always consult a good financial planner when deciding on life insurance, or re-evaluating your portfolio and making changes.
Check your policies, check your life
VeriFi is an online tool that provides you with an immediate and up-to-date overview of all your life insurance and investment policies by sourcing information from all the major life insurance companies – and presenting the information in a comprehensive report.
With VeriFi you are able, for no charge, to access information on all your life and investment policies at a glance. You are able to check the types of policies you have, the names of the insurance companies providing the cover, the nature and extent of the insurance cover provided – and other vitally important information such as the details on your policies being correct.
To find out more, please visit: www.verifi.co.za