Most people who discover a problem with their life insurance cover do so only when it’s time to claim, by which point it’s too late to fix. Whether it’s forgetting to update beneficiaries or not disclosing important details, seemingly small mistakes can have major financial consequences. Sankie Morata, Chief Executive of Sanlam Trust, and Karen Ferreira, Product Actuary at Sanlam Risk and Savings, highlight six common mistakes people make with their life insurance cover and how to avoid them.
Mistake 1. Not disclosing something important
“Life insurers pay out billions every year,” says Morata. “And no insurance company creates products with the intention of not paying its clients. But if the client fails to disclose important information – whether maliciously or by honest mistake – the insurer will have difficulty in paying their claim.”
Insurers rely on clients providing complete and accurate information to honour claims, adds Ferreira. “When you apply for cover, insurers ask questions about your health and lifestyle because we need that information to accurately assess your risk and to determine whether we can cover you – and at what price,” she says. “Inaccurate or incomplete information can result in a payout being reduced or declined at claim stage.”
Your Move: When completing a life insurance application, assume that every question matters. Full disclosure is the best disclosure. You may wonder if certain details are relevant but it’s best to disclose it and let the insurer decide. Double-check the information you provide and don’t be shy to run it past your financial adviser if you’re unsure.
Mistake 2. Choosing the cheapest premium
When it comes to life insurance, “cheapest” and “best” rarely overlap. “Price is an important factor, especially in the current economy,” says Ferreira. “But it’s a mistake to simply choose the quote with the cheapest starting premium. A product might be cheaper because its cover is less comprehensive. Or for the same cover, a cheaper quote likely implies more expensive premiums later on. Make sure to not only compare starting premiums, but also the projected premiums over the long term, as quotes provide both.”
Your Move: Before opting for the cheaper policy, ask yourself what you’re forgoing for the lower premium. Ferreira recommends comparing both the prices and the benefits, to make sure you’re making an informed decision and getting the best value.
Mistake 3. Not knowing what’s covered
Most people don’t read their policy documents – leaving them vulnerable to uncovered risks or paying for cover they don’t need.
Your Move: If you can’t explain the essence of your cover to someone in a few sentences, you probably don’t understand it well enough. “Engage with your financial adviser and make sure you know what you’re paying for and under what circumstances you’re able to claim,” says Morata. “An adviser can help to explain the insurable interest (the direct loss you’re being protected against), the insurance need, and the extent of the cover.”
Mistake 4. Not knowing what’s not covered
Exclusions, says Ferreira, are the things you can’t claim for. “It depends on the product, but common examples for life insurance include suicide in the first two years, and exclusions for health conditions you already had when you applied for cover.” “You also need to understand how waiting periods can affect your cover. These are the periods of time that you must be unable to work before you can claim an income protection benefit. For example, if you are off sick for 10 days, you will be able to claim if you selected a 7-day waiting period, but not if you selected a 30-day waiting period.”
Your Move: Don’t just ask what your policy covers. Ask what it doesn’t cover. Pay careful attention to the exclusions, waiting periods, and conditions in your policy that could affect claims.
Mistake 5. Missing your premium payments
A missed debit order may feel small, but it can leave you without cover. “There’s usually a grace period,” says Ferreira, “but if you don’t pay your premiums, your cover will lapse – and if something happens during that gap, you won’t be able to claim for it.”
Your Move: Consider your life insurance premium as a commitment to your future self and your loved ones by making them a non-negotiable in your monthly budget. If affordability becomes an issue, speak to your adviser or insurer before stopping payments, as there may be options available that allow you to retain some level of cover.
Mistake 6. Not updating your policy
Life changes. You get married. You have a baby. A loved one passes away. But life insurance policies don’t update themselves. “Also consider things like inflation,” says Ferreira. “Your cover needs to keep up in real terms. If you don’t opt for yearly cover growth you may be well covered now, but as time goes on and costs increase, your cover may not be sufficient.”
Related to this: beneficiaries. “Remember to add or remove beneficiaries on your death cover as your wishes change,” says Morata. “If you divorced your spouse 10 years ago but didn’t remove them from your policy, you’re leaving the executor or insurance company with a problem because they can only pay the proceeds to the people they have on their records.”
Your Move: Treat your life insurance like an annual health check. Once a year and after any major life change, sit with a trusted and accredited financial adviser. Go through your insurance policies and your listed beneficiaries, and make sure they’re still relevant to your current reality. And remember: the biggest mistake you can make when it comes to life insurance is not having cover in the first place. Just by planning ahead and taking out the cover you need, you’re already making a smart money move.
