I’ve just bought life insurance. What now?
Buying life insurance can bring a sense of relief. You’ve made a decision, you’ve confirmed the purchase, and you’re ready to move forward.
Before you file away all thoughts of your life cover, there are a few things you should do first. As with any important purchase, life cover is most effective when it’s well-maintained. Fortunately, maintaining your life cover is simple.
Here are five things you should do after buying life insurance.
1. Know who owns the policy
It may come as a surprise that the person whose life is insured is not necessarily the owner of the policy. This can cause complications at claim time, especially if circumstances have changed since the policy was purchased.
If your policy is self-owned, then you are both the owner and the insured. You’re responsible for paying the premiums and you can make changes to the policy. For example, you can change the beneficiaries on a term life cover policy if you are also the owner.
In many cases, life cover is jointly owned. This is common between spouses. Any changes to a joint policy must be approved by both owners.
Life cover can also be owned entirely by a third party. This can happen if a business takes out key man insurance on an employee, or if an adult takes out a policy on their child.
Finally, life cover can also be owned by a superannuation fund. If you have life insurance through your super, it is likely owned by the fund, even though it’s your life that’s insured. This can result in lower premiums, but it can also mean that the super trustee has the final say on what happens with any payouts.
2. Tell your beneficiary
If you’ve taken out term life insurance, it’s probably because you want to make sure a loved one is taken care of financially in the event of your death. It’s a smart move, but there’s one more thing to do, and that’s tell your beneficiary of their status.
If something happens to you, your insurer is usually not obligated to contact your beneficiary. In fact, it’s the other way around – the beneficiary is often the one who makes the claim, unless there’s a surviving policy owner.
3. Decide how you’re paying your premiums
This is likely something you considered when paying your policy, as it can determine the type of cover you get. The first decision is whether or not you’d like to pay your premiums through your superannuation fund. The advantage of this is paying with pre-tax dollars, freeing up your day to day cash flow.
The disadvantage? A gradually eroding superannuation balance. You might not notice it happening, but when it comes time to retire you’ll certainly see the impact.
You can pay your premiums outside of super, or elect to take out multiple policies with a mix of payment structures.
You should also consider the frequency of your premium payments. Funds can be flexible here, with the ability to pay fortnightly, monthly, semi-annually or annually. You may qualify for a small discount if you elect to pay a year upfront, so it’s worth considering if you have the cash.
4. Review your cover
This is one of the most critical actions you can take after you purchase life insurance. It’s not the kind of purchase you can tuck away, never to be thought of unless you need to make a claim.
You should review your cover at least once a year, or when you experience a major life change. Major changes include:
- Taking out a new mortgage
- Paying off a mortgage
- Having children
- Children moving out of the family home
- Getting married
- Changing jobs or salary
- Getting divorced
Reviewing your cover is an opportunity to check in and make sure it’s still the best cover for your situation. It’s also a chance to compare policies, because you may be able to find a better deal on cover. Staying with the same insurer may be convenient, but it can wind up being an expensive option.
5. Check your auto-renewal status
Many life cover policies are set to auto-renew, either on a monthly or annual basis. This can trap you into a policy, which means you can miss out on the chance to switch and save.
Fortunately, it’s easy to prevent auto-renewal. Find out if and when it is set to auto-renew, and cancel the auto-renewal before it happens. Even if you’re happy with your policy, managing your own premium payments gives you more control over your cover.
Once you’ve taken care of these five things, you’re good to go! Enjoy the peace of mind that comes with being covered, and don’t hesitate to contact LifeInsuranceComparison.com.au if you have any questions about your life insurance.