Expert advice: Common mistakes to avoid when taking out insurance
Wayne Paries, a certified financial planner from SWI Financial Consultants, shares advice on some of the common mistakes people make when taking out insurance and how to avoid becoming a victim.
"Financial planning is broad and each clients circumstances are unique," says Wayne Paries, a certified financial planner from SWI.
However, regardless of the unique circumstances you find yourself in, it is important that you don't rush to take out insurance without understanding the terms and conditions.
Paries says when it comes to long-term insurance, people should start by examining their needs first and not just take out insurance out of pressure.
He says one of the common mistakes people make when taking out insurance is when the "insurance is taken on a random basis and without the necessary groundwork done. In other words, clients did not take the take to establish their 'need' for insurance, the kind of insurance required and what level of cover is cover."
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"The taking out of insurance is only a means to an end, it is meaningless if not taken out to meet a need identified in the clients bespoke financial plan," he adds.
The financial planner warns against taking out insurance for the 'add-on' benefits.
"Another mistake is when clients take out insurance for the “add-on” benefits and not to address the need for which the insurance is intended. Further to the above, clients need to seek advice from a Certified Financial Planner and regular review the appropriateness of the insurance," he says.
Paries says there are fundamental questions people need to ask before deciding if the insurance will be good for them.
"The most important questions to ask would be 'does the insurance I am taking form part of my overall Financial Plan?'," says Paries.
He says people should also ask themselves, "does the insurance provide a solution for the need/shortfall that I am trying to address?".
Some insurance premiums increase after every twelve months. Paries says, before taking out the insurance, one should ask if she/he would be able to afford the new premiums.
He also adds that you should ask yourself: “Will I be able to afford the change in premium over time? Are there any lock-in charges or additional charges associated with the insurance?”.
Disclaimer: For the best financial advice which would be tailor made for your needs, speak to your financial advisor.
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Image courtesy of iStock/ @Mohamad Faizal Bin Ramli