Life Insurance

Checklist- 10 Questions Ask Your Financial Adviser About Life Insurance

Life insurance options are complex and can be intimidating. Here are ten questions you should be asking.

This article will help you get information about your policy and the company issuing it by presenting you with ten question you should be asking your financial adviser.

  1. Where am I buying my policy from?

It is important to speak with your adviser on the company which is providing the life insurance policy, before getting into bigger questions such as how much life insurance you require or what type of policy you need (term v life). You can ask your financial adviser their past experience with the insurance company and the financial strength of the provider, by reviewing their ratings and feedback online.

  1. How are my needs being determined?

There are two main factors to consider when taking out a life insurance policy:

  • How much it will take to pay off any outstanding debts (including your mortgage)
  • How much the beneficiaries (or dependents) will require to maintain the same lifestyle, once you have passed away.

Understanding your requirements are being met with your policy is extremely important, particularly for families and people who may have unusual or high debts, which may not be factored in to standard insurers or advisers rudimentary-needs formulas. You must be sure your adviser is taking all of your current and future financial needs into consideration.

  1. What is guaranteed in my policy?

It is important to talk to your financial adviser and understand what is contained and guaranteed within your life insurance policy. Most life insurers will provide some form of projection or calculation tool where you can see how your policy could pay out in the future. You can also speak with your financial adviser regarding this, these forecasts will generally also account for any market fluctuations or economic cycles.

  1. Does the policy provide any living benefits?

It is also important to speak to your financial adviser about the basic terms of the policy, this could include questions such as:

  • How long does the policy last?
  • What are the premiums of the policy?
  • What is the policy’s rate of return?
  • How does the policy’s death benefit work?

It is important to look for four aspects when choosing a life insurance policy: control, liquidity, use and equity.

Control: Understanding who owns the policy, who is funding it, and who makes the decision on the beneficiaries and whether or not the policy stays open.

Liquidity: Understanding how much, as the policyholder, you are able to take out of the policy and how quickly this can happen e.g. having the ability to receive the cash value of the policy within five days.

Use and Equity: This is an understanding of what money can be taken from the account you are paying in to, what it can be used for if this is an option and what the rules are on borrowing against it if you need to take a policy loan.

  1. When can I expect returns from my policy?

This will not be a question for people who are purchasing term life insurance, but rather those who are opting for permanent policies. Permanent policy holders should be prepared wait several years before the policy starts generating any positive returns. Permanent life insurance policies are intended as long-term savings vehicles and new purchasers should not be expecting any immediate returns.

  1. What is covered in my policy if I become disabled?

Some life insurance policies automatically come with some benefits for policyholders who become disabled. Typically, those benefits are a disability premium waiver. It is important to note however that different insurance companies have alternative definitions for disabled and whilst some providers define it as an inability to perform or undertake a specific task in an occupation other define it as an inability to perform any occupation at all. It is important to understand your providers definition and the disability premiums in the policy.

  1. What is my health changes during my policy term?

Most life insurance policies will require a health or medical exam, unless they are purchased with a guarantee-issue of come from an employer. An important question to ask your adviser is if there is an option to improve the policy if your health gets better from when you took out the policy.

  1. What happens if I can’t pay my premium?

Financial challenges can happen to anyone so understanding your options is vital. Policyholders have a grace period but it is important to discuss how long these are with your financial adviser.

  1. Will the death benefits be adjusted for inflation?

With inflation increasing each year, time can severely erode your life insurance policy regardless of if you make every payment or not. Whilst some policies automatically adjust to keep in line with inflation, some companies sell that feature at a premium or additional cost. Prior to signing any policy, it is important to ask your financial adviser about inflation and whether or not you may be required to purchase additional insurance at a later date if necessary.

  1. What happens to my life insurance policy as I get older?

Your financial health and requirements will change as your age; as will the terms and conditions of your policy. Typically, term policies will allow you to convert them to a permanent policy. However, the older you get, the more expensive this will become. It is important to ask your financial adviser about the future of any policy you hold.