Why It Makes Little Sense To Keep Chopping & Changing Your Life Cover

We are all price sensitive, especially when it comes to insurance. “Get a quote from us & save!” “Compare and save on your premiums!” “If we can’t beat your premium, we will pay you!” – this is just some of the marketing hype we all get bombarded with if we turn on our radios or TVs. Is it a good idea to keep chopping and changing your life insurance? Should we always be nibbling at the shiny cheap hook, that’s dangled in front of us by marketers, who have deep pockets and their own agendas?

We’ve come up with 4 reasons why chopping and changing your life cover doesn’t always make sense.

Your health might have deteriorated

People who are seriously ill, seldom qualify for life cover. You might think you are in perfect health, but when last did you have a medical examination? It’s easy to cancel your life cover and jump to the tune, played by a competing insurer. There is one problem with that. Imagine you cancel your life insurance because you have decided to insure your life elsewhere. During the medical underwriting process, with your new life insurer, you find out that you are seriously ill.

Panic stations!

The new insurer isn’t interested in your risk anymore and your previous insurer has asked you to complete a brand new application form. When you cancel your life cover, it isn’t that simple to reinstate your life cover again. Most insurers will insist that you complete the medical underwriting and start from the beginning.

Here is a good tip. Never cancel your existing life cover until your new life insurer has accepted your risk and issued a policy.

The way your life cover is financed could be fundamentally different

Why is the new life insurance premium, that is being offered, that much cheaper than your current policy? It could be that the finance structure of your policy is different. You could be paying a level life insurance premium with your current insurer (that means your premiums don’t increase year-on-year), but the new insurer is offering you an age-rated premium pattern (starts out cheap, but year-on-year gets more expensive, as you get older).

On paper the deal looks too good to be true. In reality, a new life cover policy might well end up costing you far more down the line than your existing policy.

Before finalizing any life insurance application, ask about the premium escalation pattern:

  1. Is the premium level, throughout the policy term?
  2. Does the premium increase by a fixed percentage year-on-year?
  3. Is it an age-rated premium, that increases as you get older?
  4. Does the cover ever increase?

Are the guarantee terms the same?

Are the guarantee terms offered by your new insurer the same as your current insurer? Perhaps you didn’t know this, but life insurance companies can’t guarantee your life insurance rates forever. They don’t have a crystal ball and can’t predict wars, economic downturn and civil unrest. Who knows what the South African landscape will look like in 50 years from now. To cover themselves, life insurance companies build in clauses which allows them to re-price their life cover rates every decade or so. This can have a significant impact on your insurance rates down the line.

Have you asked your insurer how long they guarantee their pricing for? It’s a question very few people ask because in most cases we don’t look hard enough at the fine print. We are just focused on the one thing the marketers keep drumming into our skulls – Price!

Your disability and critical benefits could be very different

It’s fair to say that one life cover benefit is the same as the next life cover benefit. The pricing and guarantee terms might be different, but if you die, the insurer pays out. Disability and critical illness benefits can be worlds apart. Disability and critical illness benefits have varying degrees of cover (the more comprehensive the disability and critical benefits, the more you will pay each month).

It would be easy to pull the wool over the eyes of some unsuspecting policy holder and beat an existing life cover schedule on price. All you would need to do is offer inferior benefits and the client would be none the wiser.

You get what you pay for. If your life insurance policy has disability and critical illness benefits bolted onto it as “ancillary benefits”, be sure to compare apples with apples.

It’s important to shop around. Don’t get us wrong, competition is healthy, and it keeps every insurer honest. Just make sure you don’t end up with the short end of the stick because you are so price sensitive that your wallet is calling the shots.

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Until next time.
The Wise About Life team

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