What should a good insurance contract look like? What not to forget and what can you wish for?
“A good insurance policy covers risks that are real. This applies to all types of insurance. Both for long-term living and one-off travel expenses – for example, for a few days during a holiday abroad,” says Tomáš Jezerčák, an expert in personal finance from Partners Group SK. At the same time, it explains the risks of incorrectly set insurance. According to him, the most expensive thing is not to be insured. But even incorrectly set conditions mean a financial loss. He recommends checking the contracts regularly: “This is the only way to avoid unnecessary disappointment during fulfillment and wasting money when paying for insurance.”
By default, we have cars, real estate, life, and health insured, but it is not always clear what payment we receive from the insurance contract in the event of an accident. “It is important to set up any contract in good quality, because even incorrectly set travel insurance can do a lot of damage in the event of problems abroad,” warns Tomáš Jezerčák.
When we are injured abroad during an activity that is not included in the insurance coverage, carelessness when concluding the contract can cost us a nice bundle of money. A separate chapter is life insurance, which is supposed to protect our property in case of loss of income due to a long-term illness, in the worst case to provide for the family in case of death.
“We have been paying life insurance for years, we invest quite a large sum in it. However, I know from experience that people rarely devote enough time to the contracts to properly read and understand what they are insuring. The insured often does not know how to properly evaluate which risks concern him and which additional insurance he really needs. The specificity of this insurance is also that, with the correct settings, the client will receive money after a certain period of time. So it is also an investment for him. The amount depends on the setting of the investment part of the insurance,” explains the expert.
The mistake is choosing cheap risks
Properly set up life insurance is important for anyone with a family. However, one exception applies here as well. “If the family has sufficient capital or passive income at the level of regular monthly expenses, then the insurance itself loses its meaning. However, this is rather an exceptional case,” points out Tomáš Jezerčák.
Before concluding a life insurance contract, it is necessary to think about what we need to protect. Whether income, loans, the child’s future, your pension or something else. It then follows what such a contract should contain.
“It is precisely this part that clients often do not estimate correctly. Life insurance can be thought of as a set of several policies that we can combine into one,” he states. And what are the most common mistakes we make? According to the expert, we choose cheap but unnecessary risks. For example, accident insurance, which is relatively cheaper, but statistics show that it is not the most important coverage. At the same time, according to data from the Social Insurance Company, a person spends time on long-term PN or ends up on a disability pension in more than 90% of cases as a result of an illness and not an accident. “The key when signing the contract is to correctly define the risks, to determine which of them would significantly affect my situation and, conversely, which ones are more likely to be a painful fulfillment rather than a necessity,” advises the expert.
The contract must be regularly “excavated”
Once every five years – this is the figure given by experts when asked how often to update insurance contracts. If there has been no change here either, it is likely that the insurance company has made adjustments to the individual supplementary insurances.
“We often encounter that the client does not take care of his contracts for years and is surprised when something happens. The care we provide to our clients is all the more important, where we update contracts on a regular basis according to their current possibilities and needs,” he pointed out. As he added, cooperation always begins with the inspection of existing contracts.
Subsequently, it is ideal to evaluate once a year how the situation of the insured has changed, possibly in the financial markets, and adjust the portfolio according to real needs. When the income increases, it is also necessary to increase the insurance premium so that it sufficiently covers the loss of income. The reverse is also true. Some insurances charge a fee for such changes. Therefore, it is better to consult an expert when making changes to life insurance. The control of the contract should include three basic areas: setting the duration, setting the risks and the investment part.
There is no time for disappointment
Correctly set up insurance mainly covers long-term loss of income in the event of incapacity for work, disability, permanent consequences caused by an accident, critical illness, or in the event of death.
The correct setting is also important if the life insurance, i.e. its investment part, also serves as an investment for the future. And this is where the role of personal finance experts is irreplaceable.
“It often happens that the client pays for decades and the final amount saved does not even match his ideas. And at the same time, the insurance company will pay everything as it should. He would have avoided disappointment if he had consulted experts about setting the fuse. Early termination of the contract is also a mistake,” adds Tomáš Jezerčák.