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How to manage your personal Life Insurance policy for maximum gains

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Sun, 22 May 2022 Source: Kwaku Gyapong, Contributor

Many of us have encountered a life insurance agent at some point in our daily interactions – and although we had no plans for a life insurance policy as part of our financial plans, it began to weigh on us to make room for it.

Nevertheless, the decision to take a life insurance policy has remained difficult for many because it is usually not in our financial plans and comes as a reluctant consideration.

Let us explore some questions that come to play in our quest to own life insurance policies. These should help us understand the processes of acquiring a life insurance policy and managing it well to enable us to benefit when the need arises.

What is a Life Insurance policy?

Life insurance is a contract between an individual and an insurance company whereby, in exchange for premium payments, the insurance company promises to pay a lump-sum when a specified event such as death, critical illness or disability happens. A life insurance policy can also be used for long-term saving needs.

There are predominantly three types of individual life policies in Ghana: Term, Whole Life and Endowment policies.

Whole life insurances are burial policies with other extended benefits which provide lifetime coverage for the policyholder and other family members.

Term life insurance protects for a selected period. Benefits on this type of policy are payable if the insured event occurs within the selected period.

Endowment policies provide an avenue for long-term savings while also providing a cover for death. An endowment policy pays a benefit whether a policyholder survives the chosen duration or not.

How do I choose the right life insurance portfolio for my needs?

With all the life insurance options available on the Ghanaian market, choosing the right policies for adequate coverage can be daunting.

Let us consider the case of Kofi, a 26-year old starting work life. Along with building an illustrious career, he hopes to get married, have children and run a home. He aims to give his family and all his dependents the best of life.

He may live a long healthy life and die above 70 years. On the other hand, he could depart this life earlier than anticipated. In all instances, some needs require reflection in deciding the right portfolio of life policies. If he lives long, there could be disruptions such as critical illness or disability and the death of other dependents, which could pose a cash-flow challenge. On the other hand, if he dies younger, he leaves the family with a substantial financial burden.

To begin with, Kofi can consider a term life insurance policy with a sum assured equivalent to multiples of his annual income (between 5 – 10 times) to cover the most critical period of his life, which is his working years.

The term life policy will serve as ‘income replacement’ in the event of death, critical illness or disability that could truncate income to the family.

Secondly, if he has dependents such as a spouse, parents, in-laws and other extended family members whose deaths could interfere with his income, he may consider shifting that burden to an insurer by taking a whole life policy such as a funeral policy on their lives. This policy will assure him of funds for final expenses without interfering with his regular income.

He may then consider an endowment policy that will cater for his medium- to long-term saving needs (usually a minimum of 5 years) at a premium he can afford. In addition, this policy will give him additional death benefits while also assuring him of funds for children’s education and other projects.

A budget for the portfolio of policies he chooses will depend on his income level. If his income is constrained, he may want to start with lower sums assured and select automatic adjustment options that will enable his benefits to grow with time.

As he enters different stages of life, his life insurance needs may change. As a result, he may have to talk to his insurers to make the necessary adjustments with time.

When should I start a policy?

No matter their age or life circumstances, every person can benefit from a life insurance policy and should be insured. The best age to buy life insurance is the age at which you start needing it, which is immediately you start making some income.

The rule of thumb is to buy when young since premiums are cheaper. Older people pay higher premiums because they are rated as higher risk. However, the next best time to own a life policy is now if you have missed earlier opportunities.

What to consider when buying a life policy

Assess your current financial situation.

Know how much coverage you require.

Choose your desired portfolio of policies to suit your needs.

Understand what affects your premium: age, gender, medical history and amount of cover required.

Prepare for the application process by being ready with the necessary information relating to your policy. Some policies may require that you take a medical test, depending on the sum assured required.

Be truthful during the application, as this may come up when there is a claim.

Be prepared to pay your first premium: paying your first premium soon after you sign-up will give you immediate cover.

How do I manage my life insurance policy for maximum gains?

Request a policy schedule to ensure your insurer has accurately captured your information.

Pay your premiums at the scheduled period (monthly, quarterly, annually, etc.) as might have been determined at the start of the policy. You may consider talking with your insurer if there is a challenge with your payments.

Request a statement once every year to ensure your payments and benefits align with your goals. You may consider talking with your insurer to adjust your benefits to fit your current circumstance.

Look out for enhancements and add-ons made by your insurer and consider an upgrade.

Be sure to communicate changes such as a change in name, death of beneficiaries, marital status and any corrections you may deem necessary which were not present at the start of your policy.

What do I need to know about life insurance claims?

Many have refrained from taking individual life policies in Ghana because of a perception of difficulty in claiming and delayed claims. However, making a life insurance claim is very easy once you understand the process. I hope these steps will help make your life claim an easy one.

Inform your insurer immediately there is a claim

Know the documents required for your claim. Generally, the underlisted documents will help with a life insurance claim:

A proof of death document such as a death certificate or medical certificate of cause of death

A doctor’s report for instances of critical illness and disability claims

A police report for accidental deaths

Identity card of deceased and claimant

Any other supporting document you may deem relevant to the claim

Be truthful in providing information when filing your claim. The information you provide must mostly match the information you provided at the start of the policy. Remember, insurers rely on other third parties to confirm information that may require clarity.

Having an individual life policy is an end and not a means to an end. Some people take out life policies because of an immigration requirement or other reasons.

Have a life policy because of its benefits to you and your family, and manage it well for maximum benefits.

“Life insurance is like a spare tyre; it is better to have it and not need it than to need it and not have it.”

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Source: Kwaku Gyapong, Contributor