Some people pay their life insurance policies for years, and then when they are dead, the insurance company refuses to pay. Watch out for life insurance policies that offer a huge amount of life cover for a small initial monthly premium.
Why small initial premiums are a warning sign
Check to see if that premium has to grow – perhaps by 10% a year – to maintain the life cover. If so, your monthly premium is set to double every seven years for life. However, will you afford this? Well, you don’t know if your financial situation will change in seven years. Too many people take out this type of policy, then find that their circumstances change and they’re forced to stop the premiums. They have very little left in terms of a paid-up or surrender value end up losing most or even all of their money.
Choose the right option
To avoid these schemes, opt instead for the traditional type of policy. However, grill your adviser as some life covers can be flexible and structured for your needs. For instance you can take out a policy loan on the cash value, creating a tax shelter. You could also elect to pay just one single premium limit. You’ll pay allowing your policy to build up enough cash value to make the plan self-sustaining or to enable you to take out a loan.
Bottom line: Some policies won’t offer so much cover initially, but they should fix your regular premium; which means that rising premiums won’t sting you in the future.