Common Insurance Buying Mistakes

Unexpected losses can put the best-laid financial plans in turmoil. Insurance coverage is necessary to protect against unexpected costs, property loss, and disability. There are no universal answers to the question of how much insurance is enough. Situations vary. Today we are talking about personal insurance (life cover, disability, trauma, income protection etc…).

A single 22-year old, unmarried, in perfect health, without dependents has different needs than a 35-year old working mother of four. But both certainly need insurance coverage.

Some types of insurance are expensive, but that doesn’t mean they’re unnecessary. It’s important to determine your needs before comparing policies.

Consider these insurance buying mistakes:

1. Choosing an excess that is too low. This is relevent to health & medical cover here in New Zealand. By doubling your excess, you could seriously cut your monthly premium. Save the extra money in your savings account. If you do have a claim, you’ll have the extra available to cover the higher excess. If you don’t have a claim, it’s money in your pocket or your rainy-day account. Do the math and make an informed decision.
   
   
2. Assuming your pre-existing conditions will exclude you from all insurance types and companies. Insurance products and providers have different requirements when it comes to your pre-existing conditions. There is no ‘three step’ rule to whether a condition will be covered or not. You’ll need to get professional advice from a financial adviser who has a good relationship with a range of insurance companies. They will be able to find you the best cover according to your condition.
   
   
3. Buying life insurance when you don’t have dependents. It’s challenging to think of a reason for carrying life insurance when you’re single and dependent-free. Life insurance isn’t necessary for everyone. Avoid paying for policies that you don’t even need. If you have excessive debt however, you may need to reconsider this point. If you are young, consider how you would pay your way if you were never able to work again. Permanent disability at a young age can create a lifetime of financial misfortune.
   
   
4. Buying life insurance coverage for your children. Unless you’re financially dependent on your children, it doesn’t make sense to insure them. Life insurance is to financially protect the people that are left behind. If you’re children aren’t contributing financially, avoid insuring them.
   
   
5. Failing to review a company’s complaints. It’s not all about the premium. Saving a few dollars each month might not be worth the hassle when it comes time to make a claim. See how other insurance customers rate their experiences. Paying a couple of dollars more each month might be worth it. A good financial adviser will be able to help you with identifying the market leaders in this area.

6. Failing to review all the options each year. It’s common to stick with an insurer for decades. Avoid letting the past determine the future. Review all of your insurance policies each year. You’re bound to find at least one better option. Make sure your adviser talks through all the options with you – changing your personal insurance policies may put you at a disadvantage. A few dollars of savings may mean that your pre-existing conditions are not covered by the new company – choose carefully.
   
   
7. Only shopping by premium cost. The monthly premium is often the only factor considered by those searching for a policy. You will notice this is becoming a common theme in the article. What are you actually getting for that premium? Remember to review all the benefits the policy provides. Buying a ‘skinny insurance product because it is cheap, may just end up being a bad economic decision in the long term. Insurance companies are not silly. If they are selling you a ‘skinny’ product it means that they are saving on their costs – that may effect you if you need to claim.
   
   
8. Failing to buy disability insurance. You’re at least 5 times more likely to be disabled than to die, regardless of your age. How will you pay your bills and care for your family if you’re unable to work? Disability insurance can be expensive, but it’s one of the most important policies to carry. There are cost-effective ways to manage your risk without spending too much.
   
   

Avoiding mistakes is an effective way to ensure success. Insurance can be expensive but shopping around can make the necessary coverage more affordable. Determine your needs and purchase insurance intelligently. Even better, speak with a professional adviser. They will walk you through different options specific to your circumstances and budget.