Insurance pitfalls to avoid – Liberty lists the Big Five
Do you pay out various insurance premiums every month without knowing exactly what you’re paying for?
Do you have the uncomfortable feeling you are not getting the most for your money or that your cover might have holes in it?
If you do, you are one of thousands of consumers who risk running foul of frequently encountered insurance pitfalls.
Despite continuing improvements in insurance industry professionalism, errors in planning and provision are still common, says Liberty Life.
The good news, says the leading life assurer, is that the most common errors are easy to spot and just as easy to correct.
Erica Stuart, from Liberty Life Risk Advisory Services, notes: “The run-in to the year-end is a good time to review your cover to ensure your needs and those of your dependants are still being met.”
But what are the most common mistakes and what can you do about them?
Erica Stuart identified the ‘big five’ …
- Mistaken identity … people mistakenly identify their new car or new home as their most precious asset when the most valuable thing they have is their future earning potential. Protect that and the payments on the Lamborghini look after themselves. If you have no income-producing assets and your family cannot support you, you are at risk without income protection. Review your priorities and safeguard the things on which your lifestyle depends.
- Leaving dependants vulnerable … life policy clients often provide for only half of current income in the event of death. If all your earning power is needed to support your spouse and family, they face acute financial distress should you die, leaving them to live on ‘half pay’. Review and amend your policy.
- Ad hoc commitments … people sometimes make sporadic decisions and buy cover as individual items. The smart way to secure optimum life and risk provision is to draw up a proper financial plan, ensuring the ‘biggest bang for your buck’ without waste and duplication. Strategic thinking pays.
- Mismatched cover … your needs shape your cover. For example, a single person with no dependants and no debt may have little need for life cover. Premiums might be better spent on income protection in the event of disability. When circumstances change, so should cover. Ensure current cover matches current needs.
- Cost-efficiency myopia … sometimes we fail to spot opportunities for improved cost efficiency. For instance, the maximum benefit on disability cover is 75% of earnings; yet some people pay for 100% income cover. Check your entitlements and ensure there is no discrepancy between what you want to achieve and the generic limits in a specific insurance category.
“One of the best ways to avoid these and other pitfalls is to consult a seasoned adviser,” says Erica Stuart. “A good industry professional will help you develop the right strategy and ensure a close fit between needs and cover.”
