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Life insurance is one of the greatest gifts you can give your family. Your life policy helps your family secure their financial future if you are no longer around to provide for them, allowing them to achieve their goals and build their generational wealth. For a life insurance policy that meets your needs and delivers on its promise, you need to avoid these 5 common life insurance mistakes.
Mistake 1: Not buying enough cover
When you purchase your life insurance policy, take some time to calculate how much life cover your family will need in the event of your death.
The 1Life life insurance calculator will help you make an initial assessment of how much cover you need. Depending on your needs and circumstances, as well as any other insurance you have such as credit life cover and funeral cover, your life insurance pay-out should cover:
- The cost of settling your estate
- Your outstanding, unsecured debt
- Education costs for your children
- The costs of supporting your household, such as food, housing, transport, education, municipal rates, electricity and water, as well as any financial products such as short-term insurance and medical aid
Mistake 2: Withholding information when you apply for cover
This is known in the insurance world as non-disclosure. You must be completely honest when you apply for life insurance, and answer all questions in full, leaving nothing out. If your insurer finds out that you withheld information, any claims your beneficiary or beneficiaries make might be declined or reduced.
You can read more about non-disclosure in this blog.
Mistake 3: Not buying insurance for a stay-at-home parent
Just because your partner or spouse is not a breadwinner does not mean they do not need life cover. Here’s why:
- You would have to pay for the care they provide for free if they were no longer around, such as cleaning, cooking, fetching and carrying, helping with homework and looking after sick kids.
- You may need the extra income and savings they contribute to the household when they return to work, or earn from a side hustle, if they pass.
Mistake 4: Not nominating beneficiaries or nominating your estate as a beneficiary
Make sure that you nominate a beneficiary on your policy. In the absence of a beneficiary 1Life Insurance will pay your cover amount into your estate, which can take months, sometimes years to settle.
Another word of advice concerns minor beneficiaries. If your beneficiary is a minor (under age 18), 1Life Insurance will pay a valid claim into the Guardian’s Fund, or a trust if you have set one up in your will. The Guardian’s Fund is administered by the Master of the High Court and access to funds is limited until the minor child turns 18.
You can read more about setting up a trust for minor children in this blog.
Mistake 5: Not reviewing your policy regularly
You should review your life insurance policy regularly for two reasons:
- To ensure you have enough cover – for example a new baby or additional debt could mean that you need to increase your cover amount.
- To keep your list of beneficiaries up to date – for example if you recently got married or divorced you may want to change your beneficiary.
Make sure you and your loved ones benefit from your life insurance policy
Avoid these mistakes when you take out life insurance and you and your family will benefit! You can be sure your family will have financial security when you pass, and your family will know they can continue paying their living costs and building their wealth.
Published on: 18 September, 2012
Updated on: 9 November, 2023