Before you ditch one risk life policy for another
agree to switch to a new product, ask the company that provides the product that is about to be cancelled what it thinks of the advice you have received.
In the accompanying articles, I have separated the issues you need to take into account when switching a risk life assurance product and those you need to consider when switching a life assurance investment product. These are the issues you must consider before you switch a risk life assurance product:
the current and future premiums in terms of your worst-case financial scenarios. You could be offered a very low premium now, but the future premium increases could become excessive and unaffordable.
Remember that, as a result of more competition, there has been considerable downward pressure on risk life assurance premiums in recent years, so life companies are increasingly relying on complex and confusing add-ons to differentiate their products. These extras may make a policy appear cheaper, but this may not necessarily be the case.
Many of the add-ons are often no more than sales gimmicks, such as paying you back, after a certain number of years, any amount you pay in premiums over the assured benefit. Inflation will ensure that this amount will be virtually meaningless.
Always consider what will happen to your premiums once you are older and unhealthy. Be particularly careful of any policy that grades your premiums according to your current lifestyle. You may fall ill and be unable to maintain the required lifestyle, resulting in significant premium increases. And the older you get, the more at risk you are of suffering from a debilitating disease. Then you may have little choice but to pay the higher premiums, because you have become uninsurable.
The purpose of risk life assurance is to enable you and your dependants to maintain your current standard of living if you are disabled and unable to work, or to enable your family to maintain their current lifestyle if you die prematurely. So ignore the temptation of benefits above what you actually require. Most, as I have said, are merely gimmicks.
One upside of switching risk assurance policies is that the infamous early surrender penalties are not applied if you cancel a policy, because there is no cash value from which the penalties can be confiscated.
the benefits you are receiving on your existing policy against those offered by the new policy, particularly when you are advised to switch disability, functional impairment or dread disease cover.
The devil is often in the definitions of the medical conditions that are covered.
You need to check the definitions and have your adviser explain in detail what is covered and what is not covered. Although the premium may be lower on the new policy, you may find that it comes at the cost of not being covered comprehensively.
need to check how long it will take before you are paid a benefit and whether you will be given a temporary benefit while you are waiting for the payment of a full benefit. Disability assurance is a nightmare most of the time; it is the single-biggest cause of complaints to the Ombudsman for Long-term Insurance. So tread carefully.
cancel a risk life assurance policy, such as one that pays out on death or disability, before a new policy is in place. Your health may deteriorate in the interim, making you uninsurable or facing expensive premium loadings and/or benefit exclusions for particular health conditions.
committing suicide in the first two years of taking out a new risk policy that pays out on your death. Most risk assurance policies carry an exclusion for suicide in the first two years.