Beware the bonus that isn’t
Buying life cover can feel like a bit of a bit of a grudge purchase, let’s face it. You pay for it your entire life, and will never personally benefit. Until fairly recently when some life assurers came up with the cash-back idea – if you do not claim, they will pay you a bonus after a pre-determined number of years.
Sound great, but is it really?
Firstly, you need to be aware that this cash back payout is not ‘free’. You pay an extra premium for it, and this amount should be clearly stated on the quote you will receive. So your total premium will be made up of the premium for life cover and the premium for the cash back bonus.
Secondly, you need to realize that if you claimed, or stopped paying your premiums at any point before you receive your bonus, you lose everything that you have paid in. Just looking at the increases in premium, after 10 or 12 years, it is not inconceivable that your premium could become unaffordable, particularly if it is increasing at 7% or more per annum.
Thirdly, you need to question how good a deal this really is for your personal situation. Do you need life cover or are you drawn to the allure of a payout? If you need life cover, shop around and get the best deal based on your needs. You will be pleasantly surprised at how affordable life cover is when it is purchased separately. You might also only need cover for a specific term, and not your entire life, and term assurance is a lot more affordable. So base your decision on how much life cover you actually need, not on what is offered as part of a package.
If your motivation is based purely on receiving a payout in future, then rather invest separately. You will then have a wide variety of investment options, and not be bound to an insurer who decides where to invest your money. You will have control over this and can ensure much better long term growth.
Be wise, be aware and get professional advice if you have to. It’s a little bit of time invested now that can make a huge difference in future. Don’t just follow the herd. Get information, ask questions and make sure you get maximum value for every cent that you spend!