Top 10 questions to ask before taking out a life insurance policy

Not all life insurance policies are created equal. Old Mutual shares tips to help you choose the right cover to provide the financial security your loved ones deserve

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Life insurance is a crucial financial product that provides security for your loved ones in the event of your passing. However, the fine print and the terms and conditions of life insurance can be overwhelming if you don’t know what to ask your insurer or your broker.

Before committing to a policy, it’s essential to ask the right questions to ensure you’re making an informed decision. John Manyike, head of financial education at Old Mutual, has put together a list of questions to help you make the right choice:

1. What type of life insurance should I consider?

There are two primary types of life insurance: term and whole life (or permanent) insurance. Term insurance provides coverage for a specific period, while whole life insurance offers lifetime coverage and may accumulate a cash value. Understanding the differences will help you choose the right policy for your needs.

2. How much coverage do I need?

Determining the appropriate amount of coverage is vital. Consider your financial obligations, such as bond repayments, education expenses and living costs. A general rule of thumb is to have coverage that is 10 to 15 times your annual income, but individual circumstances may vary.

3. What are the premiums — and can I afford them?

Life insurance premiums can vary significantly based on factors like age, health and the type of policy. It’s essential to understand the cost and how it fits into your overall budget. Don’t forget to ask if premiums are fixed or if they can change over time.

4. What factors affect my premiums?

Several factors influence your life insurance premiums, including age, health status, lifestyle habits (such as smoking) and occupation. Knowing what impacts your rate can help you make healthier choices and potentially lower your premiums.

5. Are there any exclusions or limitations in the policy?

Life insurance policies can come with exclusions — situations where the policy will not pay out. Common exclusions may include suicide within the first two years of the policy, acts of war or criminal activities. It’s crucial to review these exclusions to avoid any surprises.

6. How does the claim process work?

Understanding how to file a claim is essential for your beneficiaries. Ask about the process, required documentation and the average time it takes to receive the payout. A smoother claim process can ease the burden on your loved ones during a difficult time.

7. Can I customise my policy?

Many insurers offer riders, or additional provisions that can enhance your policy. Common riders include accelerated death benefits, waiver of premium, or accidental death coverage. Inquire about these options to tailor the policy to your specific needs.

8. What happens if I miss a payment?

Life can be unpredictable, and you may miss a premium payment. Understanding the grace period, potential penalties, and options for reinstatement is crucial. This knowledge can help you avoid unintentional lapses in coverage.

9. How does the policy accumulate cash value, if applicable?

If you’re considering whole life insurance, ask about the cash value component. Understand how it accumulates, when you can access it, and the potential impact on your death benefit. This can be a valuable financial resource if you need funds during your lifetime.

10. How do I compare policies from different insurers?

Not all life insurance policies are created equal. Request quotes from multiple insurers, and pay attention to coverage details, exclusions and premium costs. Comparing policies can help you find the best fit for your needs and budget.

Taking out a life insurance policy is an important financial decision that requires careful consideration. By asking these 10 essential questions, you can better understand your options and choose a policy that provides the security your loved ones deserve.

Remember, it’s always wise to consult with a financial adviser or insurance professional to ensure you’re making the most informed choice for your unique situation.

Visit the Old Mutual website for more information about its comprehensive life insurance solutions.

This article was sponsored by Old Mutual.