The following TEN GOLDEN RULES apply to all life assurance
policies:
1. Plan ahead carefully. Put as much effort into thinking about
designing your life, as in planning your next vacation (we call
it holiday, here in the old British "colonies").
2. Select your assurance company (or bank* offering the
retirement plan) very carefully. These days more and more
financial institutions are merging their operations and banks
are increasingly marketing life assurance products, which were
once the exclusive preserve of assurance companies. Don't buy a
policy from the first company to approach you. You may be
committing 10% of your hard-earned income for the next 30 years
and this needs careful thought.
Look closely at the projected investment returns provided by
your adviser. Remember that they are illustrations only and are
not guaranteed. Ask yourself, are the assumptions ( the interest
yield) realistic in the long term? One company's figures may be
far higher than another; but they may be quoting at a far higher
interest rate than the competitor. Is one policy quoting a value
assuming premiums are inflation linked - the other not? This
makes an immense difference to the final payout.
For example: $100 a month paid in over 30 years with anaverage
investment yield of 6% amounts to $58293; while at 8% it will
build up to $72485 - a substantial difference! Also ,if you
started a year earlier you will receive an extra $7200 + by
paying in an extra $1,200 (value $79747 at 8.0 %).
Besides your life assurance policy, ask yourself, what else does
the company offer you? Some offer a full financial planning
service, tax planning, wills and so on. And what of their
service to you as customer? The initial commission paid to the
agent is a payment for servicing that policy over the lifetime
of the plan . This payment is made up front; however bear in
mind that life assurance policies normally last far longer than
agents do!
A word of advice... * NB:
3. Select a salesman who you trust. This is of vital importance
in buying insurance. Incidentally, the word insurance generally
refers to general or short-term insurance (like house, car,
boat), whereas assurance denotes long-term or life assurance.
There are two types of insurance salesman: agents and brokers:
Agents can sell only for the company that employs them, while
brokers can sell for all companies withwhich they have a
contract. My advice... It does not matter whether you choose an
agent or a broker. The important thing is that you must fully
trust the person and feel completely at ease with him or her.
You are giving this person complete confid- ence as regards your
personal finances, your hopes and dreams. In turn , this person
should come up with an analysis of your most pressing financial
needs. Then they must explain all the technical details of your
policy- the solution to your financial problem. Then in the
future they should provide continuing service by sorting out any
problems that may occur and by regularly reviewing your
assurance portfolio on an annual basis.
Another word of advice...
4. NEVER BUY A POLICY YOU CANNOT AFFORD.
Peoples circumstances change - often drastically. This is far
more frequent these days with downsizing and redundancies ...and
we mere mortal humans can't foresee the future. My advice: just
be very careful when taking out a new policy. Let the buyer
BEWARE.
5. START AS EARLY AS POSSIBLE.
Whether you are looking for assurance against death, disability
or illness , or you are saving for your retirement, it always
pays to start with your policy as early as possible. The younger
you are the cheaper the cost of your lifecover. In addition,
young people have a wonderful opportunity to start saving early.
It's quite amazing to see the effect of compound interest on a
few extra years... a huge difference at payout time (as we saw
in the example mentioned previously. The "magic" of compound
interest works wonders on your final pay-out!
6. ENSURE THAT YOUR PREMIUMS INCREASE WITH INFLATION.
Most life assurance companies offer the possibility of
automatically increasing your premiums every year. If your
company doesn't offer inflation indexing , make voluntary
increases each year for as much as you can reasonably afford.
If your premiums are not increased in line with inflation, then
you are effectively investing less each year (in real terms, ie.
terms of the purchasing power of your money).
7. ALWAYS GIVE COMPLETE MEDICAL INFORMATION
8. NEVER SURRENDER YOUR POLICY... unless it's an absolute
emergency and you need the cash value of your policy desperately
(but remember, you always lose out on surrendering a life
policy).
9. CHOOSE YOUR INVESTMENT FUND CAREFULLY. Give some careful
thought to it. What is your investment philosophy and aim? Do
you want to be conservative, or are you willing to "take a
punt"? Are you looking for a "high investment yield", or a
"safer" return. It's always a "trade-off" between risk and
return. STRIVE FOR BALANCE in your choice of investment fund.
NB: Always remember that Life Assurance is a LONG- TERM
investment. It is not designed to work like a bank account- to
draw out money whenever needed. Cancel early and you will lose
money. ... And don't draw on your policy unless it is absolutely
necessary.
And finally,
10. REVIEW YOUR LIFE INSURANCE REGULARLY
A few words to end off...
A visit to your financial adviser is like having your car
serviced ; it doesn't necessarily have to be like a visit to the
dentist - Ouch (my friend Andy is not like that though)!
I hope this information has been helpful and informative to you.
About the author:
Craig Lock has been involved in the personal finance field for
too many years. For valuable money information on how to make
the most of your money by better managing your finances see
http://www.nzenterprise.com/money/index.htm
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