Things to consider when buying term insurance policy.
By Farai Francis Zhara
Term Life insurance policy is an armor to protect the future of chosen beneficiaries. By having this policy you will be taking the monetary worries off the shoulder of your loved ones. We explained what term insurance is in the last article (if you missed it click here), and here we want to look at some of the things to keep in mind before buying a term insurance.
Most people procrastinate when it comes to taking a policy. Young people think it is for adults and if approached by agents they will always say they are still thinking about it even if it is a year later. It is important to note that the more you age the more expensive it becomes because insurance premiums increase with age. Hence, the earlier you start, the cost-effective it gets and therefore the best time to have one is now.
When buying term insurance, it is recommended that you take quotations from various insurers. It is a good idea to compare insurers so that you will see which one best suits your needs and not just join simply because an insurance agent has been following up with you for some time, or because you want to help him/her meet his targets.
It is not your moral responsibility to buy a policy from that agent. Even if the agent is a relative who has been after you to buy a term plan, do not just buy without looking around and you should learn to say ‘NO’ if you find a better deal elsewhere or if you find out that it is not the best policy for your intended beneficiaries. Remember you will be doing this for the benefit of your family and not for the agent.
You must do a thorough research on the plans available in the market. You can calculate and compare premiums and the features across the different insurance companies to choose the one which is best for your requirements.
Another aspect you should focus on, is the insurer. You must avoid fly by night companies because in this case you are looking for a lifelong relationship. I always advise clients to do company back ground checks before joining a policy. If in doubt, Insurance and Pensions Commission (IPEC) will assist you to verify if the company is complying with all the regulatory requirements. If it is not then better leave it before you gamble with your hard earned money no matter how attractive their deal is.
After having made enquiries, many people always rush to choose the cheapest insurer but there are a lot of other things to consider and not just the cost. Though bearing the same name “term insurance” insurers often provide variant provisions so you will have to look for the one which best suites your needs and offering benefits that give flexibility at a good price.
Look out for one which offers accelerated death benefit. This will allow you to access own death benefit in case you are diagnosed with a terminal condition or severe illness. One can use the money to pay for medical expenses, or other things.
You must also check if the policy is guaranteed to be renewed. This allows you to renew the policy (most likely to be done at a higher price) once the level term period runs out. It can be useful if you reach the end of the level term period and still need life insurance but have health problems.
One must also check if the policy can be converted to a permanent policy later on. This permits you to shift to a permanent life insurance policy if you need one. There is normally a deadline for changing to a permanent policy so one must take note of the dates before they pass or otherwise it will not be possible to convert thereafter. The policy must also outline the type of permanent policy available through conversion.
look if you can be able to change the sum assured later on. Your life insurance might need modifications in the future so you must have a policy which enables you to adjust your coverage amount. In most cases you can only change downwards though.
It is advisable to choose the longest possible policy term. If you opt for a smaller tenure you will be locked at that and might not be able to extend the same later. If you manage to extend the premiums will be higher than before. On the other hand, when you opt for a longer tenure, premium will be unaffected for the entire term. If at any given time you wish to cease your policy, you can do so without any consequences.
It is important to choose the right sum assured for your beneficiaries. Note that what is right for your friend/relative might not be right for you. A good term insurance cover amount should consider your monthly costs, outstanding Loans, upcoming costs, existing insurance, annual income, and savings amongst other things. Remember also to adjust for the inflation for the period equivalent to the term tenure.
When it comes time to supplying your details please provide accurate information. Most claims are rejected on account of discrepancy of the information supplied in the proposal form. One must invest time in examining the insurance form and filling the correct details. Remember to do it by yourself and do not ask an agent to do it on your behalf unless you are not able to write. Agents are more worried about their target and so at times tend to make mistakes which will cost you dearly. If you let someone do it on your behalf then please take your time to go through and verify that what you supplied is what is on the form.
Avoid submitting your form without adequate information about your nominated beneficiaries. The rationale of acquiring this policy is to provide financial shield for your beneficiaries after your death. I therefore find it difficult to understand why clients are made to submit forms without this essential information. If you do not have the details ask the agent to collect the form later unlike giving him/her and supply the information over the telephone. They may forget to enter the information and your intended beneficiaries will find it difficult to access this money and at times the money will end up landing in the wrong hands.
Remember that you can add and remove beneficiaries at any time without paying anything. If you decide to do this make sure you supply the correct information to the insurer and it is advisable to do it yourself and also not over the phone.
Last but not least, as soon as you opened a policy it is recommended that you notify your family, friends, workmates or beneficiaries about your life insurance policy so that they can claim it without any hassle when the need arises. If for some reason you do not want to notify beneficiaries then notify as many people as possible that you have a life policy with company X. If anything happens to you at least one of them will notify the insurer and will be told names of the right people to claim.
Farai Francis Zhara holds an MBA from the National University of Science and Technology and a BCom from Midlands State University. He is a certified client services practitioner with over a decade in the insurance sector. He writes in his personal capacity. [email protected]