Buying insurance is not as simple as it sounds

I was reading the book "Complete Personal Finance Guide" by Jeff Prestridge and his section on insurance was a timely reminder to me.

Below is an extract that I hope will help you too.

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The first principle of good financial planning is to make sure that your dependants will not be left short of money if you die, or you become too ill for work.

For many families hit by the death of the breadwinner, bereavement may soon be followed by financial turmoil, as the household income dries up.

For families who wish to avoid such financial traumas, the answer lies in the purchase of life insurance - in simple terms, a policy that pays out when the insured person dies. It is an essential buy for anyone with dependants, particularly partners and children.

But buying life insurance is not as simple and straightforward as it should be. Here are the dos and don'ts:

* Do pause before jumping into the life insurance jungle. Check how much cover you already have.

* Do keep savings and insurance separate. It is one of the golden rules of personal finance. If you want life cover, choose term insurance.

* Do seek independent financial advice. A good adviser will help you determine how much cover you require, taking into account your existing insurance, age, number of de­pendants, your income and financial liabilities. He or she should review your cover on a regular basis to make sure that it meets your financial needs.

* Don't be afraid to shop around for alternative term insurance even if you already have cover. Term insurance premiums have fallen over the past few years through increased competition. Many people could save money by cancelling their present policies and shopping around for alternative cover.

* Do remember that if you stop paying premiums on your term insurance policy, your cover will expire with no cash value.

* Don't surrender a life insurance policy without first taking financial advice.

* Don't think that a whole life policy represents a sound savings vehicle...it doesn't. The investment value of a whole life policy remains meagre for many years. If it is a savings scheme you want, look elsewhere.

* Don't be enticed by mailshots or newspaper advertisements offering free gifts or free initial cover if you take out a specific policy. You are much better off consulting a financial adviser.

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Excerpted from Mr Prestridge's book, "Complete Personal Finance Guide", published by Random House Business Books.

Article Source: http://www.wealthmountains.com/articles

About the Author
Keith Choy runs the WealthMountains portal which offers tips, tools and news on path to multiple streams of income. To get the latest news, do signup for his WealthMountains eZine at www.wealthmountains.com/news.htm. Also visit his Personal Finance tips

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