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When Life Insurance goes wrong… 5 pitfalls to avoid

May 16 2018 7.5 min read Life Insurance

I’m going to open this blog with a question.

What percentage of Life Insurance claims do you think are paid?

A fiver says you’ll probably guess wrong.

(If you’re right, the fiver is metaphorical)

Drum roll please.

Over to you, McCartney.

life_insurance_pitfalls_to_avoid

So, around 95 percent of all death claims are paid out. (sticks fiver back in wallet)

That’s a decent wedge. And for the ones who are declined, it usually comes down to one of two things: the applicant forgetting to disclose something major on their application or attempting to defraud the insurer. (Neither are good ideas.)

Believe it or not, the insurers actually want to pay claims. If you think about it, without claims, there is no point in having Life Insurance.

Plus, they don’t want the bad publicity that goes with declining a claim. So, if you genuinely forget to disclose something, they’ll try to make some sort of payment. But if they get the faintest whiff of fraud…

life_insurance_pitfalls_to_avoid

Moral of the story: don’t try and pull a fast one on the insurer. It won’t work in your favour if you’re caught.

So what are the Life Insurance pitfalls you should avoid?

1. Lying on your application

I mentioned it above but lying on your application is not a good idea. In fact, I’d go so far as to say it’s a akin to setting a stack of money on fire.

Don’t lie about the fact you smoke or omit details about any illnesses, current or past that may affect your premium. You might think pretending you don’t smoke won’t come back to haunt you (or your family, as it were), but it will. Let’s say you’ve paid your premium for 30 years like a good, upstanding citizen but during that whole time, you’ve been puffing away.

You then pass away peacefully aged 87 from old age, surrounded by your loved ones.

Your darling wife – let’s call her Mabel – gets in touch with your Life Insurance provider, only to be told your policy isn’t going to pay out because they’ve checked your medical records and found out you’ve been a smoker since you took out your policy.

These two things don’t seem to align – what does it matter that you smoked? – but the truth is that smoking makes your premium more expensive, so you should have paid higher premiums from the start. Your insurer will likely pull the plug on your pay-out.

At best, expect a much smaller pay-out based on the amount of cover you could have bought for the same premium if you’d told the truth about being a smoker.

Poor Mabel… (literally.)

2. Automatically going with a joint policy

You’re looking at three main types of Life Insurance for you or your plus one.

Single cover does what it says on the tin: you’re insured and if you croak, your policy pays out.

Joint life cover insures two people – you and your beloved (or-not-so-beloved if they keep leaving the toilet seat up/down). A claim is paid out on the first death only. That last part is very, very important. Your cover dies with the first person.

Dual cover, then, insures two people but a claim can be paid on both deaths . If you pass away, cover continues for your other half.

For my money (and yours), dual cover is far and away your best bet. It’ll cost a couple of quid extra, but it’s double the cover.

Let’s look at the maths:

Sarah and John are in their mid-thirties and they’d like €500,000 cover each over 35 years so their future offspring will live like royalty in the event of their deaths. They’d also like the option of extending their cover in the future without having to answer any health questions.

Sounds fair enough.

They will be looking at paying anywhere from €80-odd quid with Royal London up to €113 per month with Irish Life.

But just look at the difference in price between joint and dual life:

life_insurance_pitfalls_to_avoid

They’ll be paying somewhere between €2 and €4 extra per month for dual cover, and that’s peanuts in the grand scheme of things. Their offspring will thank them from their yacht. (Sarah and John’s kids are irresponsible with money.)

3. Waiting until you’re older to get a policy

I’ve written about this so many times but here it is once more, for the now much older people at the back: the longer you wait to start your policy, the more expensive your Life Insurance will be.

Don’t wait until you’re 40 plus to finally take the plunge, because it’ll hit you in the pocket. To keep costs as low as possible, you can buy a short term policy with the option to extend your cover when you’re older without having to answer any pesky health questions (which could otherwise result in a nasty loading ).

It’s a no-brainer, really. Buy Life Insurance as soon as you need it. You’ll never be younger; it’ll never be cheaper.

4. Not shopping around

Look, I get it: it’s very easy to take the deal with the devil and pop into your bank or your local insurer and buy the first policy you’re offered.

It’s a few quid a week and sure, it’ll do – won’t it?

Eh no…it won’t.

Life Insurance quotes for the same cover vary widely, company to company. This is especially true if you have health issues – in which case, one insurer might turn you down outright and you’ll come away feeling uninsurable.

But don’t fret: it’s absolutely possible to get Life Insurance with a health problem.

Anyway, you absolutely should shop around, whether you’ve got a health issue or not.

Again, don’t go with your bank. It’s the quickest route to not getting a good deal. Here’s why your bank isn’t your best bet for Life Insurance.

5. Only insuring the main breadwinner

If you follow the football, you’ll know Simon Thomas, one of Sky Sports’ leading pundits. His wife, Gemma, tragically died in late 2017, three days after being diagnosed with Acute Myeloid Leukaemia, at just 40.

In three quick days, Simon’s whole life changed.

It’s something he writes poignantly about on his blog, A Grief Shared. It’s a tough read as Simon writes about loss, his career and the new reality of his and his eight-year-old son, Ethan’s life.

In the middle of his most recent blog post, Simon dips into the financial reality of being a single dad. How would he balance his career – which often took him away for whole weekends or weeknights for football punditry?

Simon was fortunate enough to have Life Insurance – and both he and his wife had been insured, despite the fact that he was the main earner.

Simon writes:

“A few years back, while he was working for Sky Sports, my friend Ed Chamberlin developed stomach cancer. Thankfully, Ed came through; he’s now on ITV Racing and is, for me, one of the very best sports broadcasters in the country. The most important thing to come out of that horrible episode was that Ed got better. But the other significant thing that emerged was that Ed told us all to make sure we had Life Insurance and Critical illness cover, in case we were ever unfortunate enough to go through something like he did. I did have a policy but it provided nowhere near enough cover.

“A few weeks later I sat down in our kitchen in Balham with Gemma and our financial advisor, Roy McLoughlin. We put a new policy in place with much better cover, but there were two quotes: one to cover me, and one to cover both of us. You won’t be surprised to hear there was quite a big difference between the two!

“And as Roy told me in the aftermath of Gemma’s death, I was like most blokes that day. You look at the two figures and decide that because you’re the main breadwinner you’re only going to cover yourself. I very nearly did exactly that but didn’t, thanks to a story Roy told me that day. He spoke of a client of his who had exactly the same dilemma I was having, but in the end decided only to cover himself.

“Just 18 months later, like Gemma, his wife developed Acute Myeloid Leukaemia and died shortly after. Roy told us that it was the most difficult call he’s ever had to take as the poor husband rang him in tears to check whether he had covered his wife, and Roy had to tell him he hadn’t and as a result there would be no pay-out.”

Because of his Life Insurance policy, Simon can afford to take a break from his career and focus on looking after his son and coming to terms with his grief.

Paying a few euro extra for dual cover doesn’t seem like such a big deal anymore, does it?

Over to you…

Are you looking to protect your loved ones by getting Life Insurance? I can help you get the best cover to protect you and your family.

Give me a call on 05793 20836 or complete this short questionnaire and I’ll be right back.

Nick McGowan
lion.ie | making life insurance easier

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