Unless you work in the insurance industry, insurance is a hard thing to get excited about. If you’re an insurance sales agent, and you’re reading this, you already know how hard it is to persuade a customer to take their insurance requirements seriously! Because of apathy and lack of understanding among consumers, millions of people don’t have the cover they need. Some reports say as many as seven out of ten self-employed people don’t have any cover – and they’re often the people who need it most.
Nobody likes to talk about – or even think about – the risk of themselves becoming sick, or passing away before their time. That’s a factor in not taking out cover, but it’s also a factor in people not shopping around for their cover. People just want to have the conversation once, do it as quickly as possible, and then never think about it again. For that reason, a lot of people arrange their insurance directly through their banks, even though banks tend to be tied to just one insurance provider, and charge bank commission on top of the insurance premium. That pushes up the cost.
If something is worth doing, then it’s worth doing properly. If your situation in life is unlikely to change, then it is possible to take out life insurance once and never have to change it – but you should still take the time to shop around for it before you commit. Here’s why.
Standards Of Cover Are Not The Same
Life insurance is rarely just life insurance. Most modern policies now also include terminal illness cover, which pays out when you’re diagnosed with a terminal disease and are expected to pass away within the next twelve months. What counts as a ‘terminal illness’ can vary from provider to provider. There’s even more variance when it comes to critical illness cover. Critical illness cover is arguably even more important than basic life insurance, because it pays out for accidents and illnesses that have an impact on your quality of life, but don’t threaten death. A common reason for a critical illness insurance payout might be that you’ve had a stroke, and are unable to work, but you’re still alive and therefore still need money to survive.
What counts as a critical illness can vary from provider to provider. Some insurers won’t pay out for a heart attack unless it’s of a specified severity. Others will pay out for any heart attack, regardless of severity, so long as a doctor confirms the diagnosis. Some providers won’t pay out for death if it occurs within twelve months of taking a policy out, but others will. You should get the best cover for your specific concerns – and that means assessing the options properly.
Underwriting For Pre-Existing Health Conditions Varies Dramatically
The strange thing about buying insurance is that you hope you never have to use it. It’s a safeguard, and it’s there to protect you financially when you need it the most, but ideally, you’ll never have to call on it at all. It’s the same for the company you buy it from, too. They’ll happily guarantee you the cover you’ve asked for, but they’re hoping they never have to deal with a claim and pay out. When you make an application, they’re assessing the likelihood of having to make that payout. The more risk they feel there is, the higher your premium will be.
For the providers, giving you insurance is a form of gambling. They’re betting that they’ll make more money in premiums than they’ll have to pay out in claims. Each provider has a different formula for making that assessment. Think of it as being like a mobile slots website or sister sites. Mobile slots websites stay in profit because they take more money in bets than they pay out in winnings. The odds of each mobile slots game are carefully calculated so that each player has a fair chance of winning, but they’ll still make more money than they lose. All mobile slots have their own odds, and therefore offer different chances of victory to players. If they didn’t, there wouldn’t be so many mobile slots websites! The same is true of insurers. How one insurer will view the risk of you having, for example, high blood pressure might be very different from how another insurer views it. Some insurers will penalize you heavily for having diabetes, and others won’t. The only way to know for sure is to shop around.
Some Insurers Have Reviewable Rates
Just because a policy has a low monthly premium when you take it out doesn’t mean that it will stay that way forever. Often, the policies which appear the cheapest are drawn up on a ‘reviewable rates’ basis, which means that the price you’re paying will be reviewed at regular intervals (generally every three to five years, but sometimes annually), and the cost will go up. Once you’ve had your policy for ten years, you could be paying 50% more than you were in the beginning. It doesn’t have to be that way. You can take out policies with fixed prices, and they’ll stay the same for the duration of your cover.
There are occasions where you might want the premium to increase. Some insurers offer an option called indexation, whereby your amount of cover increases each year to take into account inflation, and your premium changes with it. What £250,000 can buy you today is likely to be more than what £250,000 can buy you ten years from now, so indexation protects the value of your insurance. Again, not every insurer offers this option.
We could go on with this. Some insurance policies come with a ‘cash-in- value, and some don’t. Some are designed to cover you for the whole of your life, and some are only intended to protect you until you reach retirement age. The policies offered by different providers may often be broadly similar, but they’re never identical. The last thing you want to do is spend years paying your monthly insurance premiums only to find that you don’t have the type of protection you thought you had. Take the time to find out what everybody has to offer – and make sure you speak to a qualified insurance adviser to help you do it.