The world of insurance can be very confusing, with agents throwing around terms like premiums, deductibles, critical illnesses. In spite of the best efforts of financial advisors, most people still have little understanding of the policies they buy. So, here are some questions to ask your financial advisor to help you better understand the policy you’re about to buy and make better choices.
Insurance Question 1) What else can this policy do for me?
Most policies today are designed to fit more than one objective. Life policies may protect your loved ones financially, but many are also able to help you to save money to meet a future life objective. In addition, Insurance riders can help to enhance or increase the kind of protection that you can get for a small additional fee.
Insurance Question 2) What are your assumptions?
It seems like many if not all life policies nowadays come with an investment portion. Most financial advisors will show you a “Benefit Illustration” that shows you how your money will grow over the years. The truth of the matter is that most of these illustrations are based on projections and may or may not come true. Think of them as examples of how the future can possibly go, rather than what will happen. These examples are all based on assumptions that may not be realistic when related to past performance.
Insurance Question 3) Which portion of my premiums/returns are guaranteed or non-guaranteed?
Many financial advisors will tell you about products that have a certain percentage return over a few years. What most people don’t tell you is that not all of these returns are guaranteed. Generally speaking, most products have a guaranteed as well as a non-guaranteed returns portion. Potential buyers should also note, that although most products guarantee your principal sum or total premiums, they may only be partially guaranteed. This is particularly the case in Investment Linked Policies (ILPs).
Insurance Question 4) Can I make partial or full withdrawals if necessary? What will happen if I terminate my policy?
Buying an insurance policy should be taken extremely seriously, since, in many cases, premiums are paid over years if not decades based on assumptions you make now. Most people assume that they’ll be able to make payments over the next few years, but the future is never certain. It is, therefore, best to clarify before buying, what would happen if termination of the policy was required. Many policies impose a penalty for early termination, always find out what your policy’s termination clauses are and if you can make partial or full withdrawals if you so require.
Insurance Question 5) What exclusions are there? What are my deductibles?
You often hear of many complaints about the insurance industry, common gripes are ”I bought insurance, but when the time came they said they wouldn’t pay for me!” or “I have insurance, but when I went to the hospital, they said I have to pay X thousand dollars before they pay the remaining Y thousand dollars”
What these people are discussing, of course, are exclusions and deductibles. Exclusions are basically things that your insurance won’t cover, for example a person with a history of heart disease may have to pay extra to ensure that any heart disease he faces will be covered by his medical insurance, failing which he may not be covered.
Deductibles, on the other hand, are the amount that you’ll need to pay out of pocket before your insurer will begin to pay out. Understanding these two factors will help you to ensure that you won’t feel cheated by your insurer when the time comes to make a claim. It also helps you to understand what you’re paying for and makes for better comparisons between different insurers
Although this list of insurance questions will help you better understand the policy you’re about to buy, do not think of this as exhaustive. The more questions you ask, the better your options will be. So ask as many questions to your financial advisor as possible!
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