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219 Don't make THIS mistake with your life insurance

July 27, 202211 min read


Do you have any idea how much you're paying for your life insurance? Life insurance is pure math and probability, and becomes more expensive the later you take it in life.

I've had clients who have paid for life insurance their whole life only to have to give it up in retirement (when they're most likely to need it) because they made this ONE big mistake when they chose their life insurance…

Today I'll share this, and a few other common mistakes people make when it comes to life insurance.

Show notes:

  • [01.22] The Premium Pattern

  • [02.14] The Risk Curve

  • [04.00] Level premiums, age-rated premiums, 5% premiums

  • [08.20] A second set of increases in monthly premiums

  • [10.05] A delicate side note - taking over your parents life insurance

  • [13.20] Swopping life insurance often

  • [16.30] Over-insuring

  • [19.12] Keeping your beneficiaries current


"Life insurance is pure math and probability." - Lisa Linfield

"The longer you stay alive, the longer you pay your monthly premiums towards that money that you're going to draw when you die." - Lisa Linfield

"If you don't need it, you don't get paid for it." - Lisa Linfield

"Know HOW you are paying for your life insurance." - Lisa Linfield

"Go and check your policies, and just really make sure that you haven't been sold something that you're not going to be able to use when you need it most." - Lisa Linfield

"Life insurance isn't something that you should be keeping at high levels forever. You should be using that premium to invest if you don't need it." - Lisa Linfield

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I've had clients who have paid for life insurance their whole life only to have to give it up in retirement (when they're most likely to need it) because they made this ONE big mistake when they chose their life insurance… Today I'll share this, and a few other common mistakes people make with Life Insurance

So I hear your minds whirling wanting to know what the biggest mistake is

Premium Pattern…

The What?

The premium pattern is how you pay for your life insurance.

And unfortuneately, it often gets used as a way to make you switch your life insurance to people who may not have your best interests at heart and are trying to make a sale.

You see, behind Life Insurance is pure maths and probability. And in this case, the probability the actuaries are looking at is the probability or likelihood of you dying.

If you stay alive a long time and pay your monthly premiums or payments for 50 years, they make alot of money from you. But if you start with them today and next month you die and they need to pay out millions but haven't even made a thousand, that's not good for them.

As you can imagine, the chance of you dying is far less in your 20's, creeping up at a very slow, flattish curve... until you hit your 50s when it starts to creep up even faster... and then in your 60s and 70's when that curve starts shooting straight up like an exponential curve.

So how do they price for the chance?

There are three most common ways to pay for your life insurance:

  1. Level.

  2. 5%

  3. Age Rated

Level premiums mean you pay the same amount for that Million of life cover today as you would in 40 years time.... essentially overpaying now when the chance of dying is low (but you're still employed and earning) and underpaying when you're retired and your chance of dying is high (and you're not earning a salary)

Age Rated means that you pay according to the chance of you dying. So it starts out low, and then as you age, suddenly you find yourself paying more and more and more for the same million of life insurance, but getting nothing more.

5% is somewhere in the middle. Each year you pay 5% more for that same million that you did the year before.

The other day I had a heartbreaking discussion with a women whose husband had recently passed away.

In their culture, Life Insurance was almost seen as a badge of honour, of maturity, of providing for a family.

Her husband had always had a lot of insurance to make sure his family was OK. In his 50s, he'd been convinced by a broker to switch it all over to a new policy that would give him the same cover for a big saving. So he did.

Unfortunately, the reason it seemed cheaper was that he was correctly on a Level Premium, and this broker sold him a policy on age his first few years were cheaper, but then each year his monthly premium payments started growing and growing and growing.... until in his 70s he could no longer afford it, and gave it up.

Unfortunately just a few months after cancelling his policies, he died suddenly of a heart attack. All those years of paying for life insurance went to waste.

Do you have any idea how you're paying for your life insurance?

I strongly suggest that you get your policy or ask your broker to send it to you and look out for "premium pattern" and check if it's age-rated; 5% or level.

Don't confuse the basic premium pattern - or how you pay for the original amount - with whether you want the amount that gets paid out to increase with inflation.

You may want the amount to increase with inflation (which means each year you actually are buying say 6% more), but you want that and the base amount to stay level or at least be limited to 5% increase per year.

You'll pay more now, but you'll thank me when you are retired

So if you are paying age-rated premiums, go and ask your insurance company or broker to requote you for level or 5%.

And, if you're ever "sold" more life insurance for cheaper rates, let this be the first question you ask.

Which brings me to a delicate point.

Ask your parents now to give you the option to take over their life insurance before they cancel it…. Especially if you are going to need to pay for them

Here's the challenge - Life insurance becomes more expensive the later you take it in life - and in fact most of the companies have cut off limits.

So if you are needing to support your parents as there is no money left, there are two things I often recommend to my clients...

1. You continue paying the basic medical aid - because if your parents don't, and something happens, in that moment you will absolutely go into debt to give them the care they need and..

2. You may want to pay their life insurance and become the beneficiary of it when they die.

It is easy to do that - you just work with the life insurer - and it then means you could get some of the money back.

The only thing I would do is if you have siblings, you need to have an open and honest conversation with them…

Often, only one of you can afford to pay for your parents and pay for the premiums

So here's the question - have you had the conversation with your parents about taking over their life insurance? I know it seems a little "out there"… but you may find that it makes them feel a bit better knowing that someone they love will benefit from their years of paying...

Anyway, after that small digress… let's get back to YOUR life insurance

Be weary of swapping all the time…

So in order to explain this, there are two things you need to bear in mind…

1. The older you are, the more likely you are to die and therefore the more expensive it should be


2. Most people that sell life insurance take upfront commission over 2 years... meaning that they make all their money in the first two years. It's therefore better for them if they change your product every 3 years because they keep making money off it.

Now, there's a caveat here - products do get better and with more data can be a better offer - so it's not always right to say 'don't change'

My point here is just make sure that when you're offered the new best deal

1. It's from someone you trust

2. You're comparing apples with apples - a level premium pattern with a level, and not a 5% or an age rated

The other day I was doing a full financial review, and it came to the life insurance piece, and I mentioned that I thought they should get their life insurance and critical illness on level premium - but that it would be more expensive.

The husband in the discussion was seriously frustrated and when I dug a little deeper, they had been sold this policy by a friend of theirs... and used to have level premium, but had been advised that they shouldn't pay for something they won't need later on.

So when you next get advised to relook your insurance - ask the following questions

1. Please give me a like for like comparison on what is covered

2. What premium pattern are you comparing

3. Why is this better than my last one?

Don't Over-insure - Remember it's only until you have enough money

Let's go back to the basics of why you get life insurance

1. To pay for any debts

2. To pay for the costs of dying (such as the 20-25% death taxes

3. To provide for the costs of the family because they don't have your salary

4. Short term cash when everything in your name gets frozen for a year or two

So let's say you need R2m for the house mortgage, R4m for kids schooling and university and R9m for living costs until then.

That's R15m in total.

Now, if you have no investments, you need the full R15m.

But, if you have R10m invested, you only need the additional R5m. In theory, your life insurance should drop as you invest more

But be careful not to double count. The other day one of my new clients discovered their homeloan had death insurance on the mortgage outstanding…. So that was one less thing they had to cover.

The flip side is to make sure you do your calculations correctly in terms of how much you need... and then calculate backwards on that.

So here's a question - if you or your partner were to die tomorrow, do you know if there's enough money to keep you going?... Both in the immediate term when the estate is frozen, and in the longer term?

Keep Beneficiaries Current & Don't leave it to an estate without thinking carefully about it

The biggest mistake I see people make here is that they forget to update their beneficiaries on their Retirement Funds, leaving it to their exes or forgetting a child

With Life Insurance, the money goes to who you've nominated - no questions asked

Retirement funds are different - the trustees have a duty to find anyone financially dependent on you, regardless of who you nominated

Now both Life Insurances and Retirement Funds skip your estate process and so executors may not charge for them.

So, if you leave your life insurance to your estate, it will automatically draw an additional fee.

The only 2 times you should leave it to your estate is

1. If your estate needs money to pay the taxes and bills and

2. If your kids are too small to receive the money (in which case I advise you leave it to their testamentary trust)

Lisa LinfieldChristian MoneyPodcastBusiness OwnerEntrepreneurestatelife insurancemistake with life insurancebeneficiariespremium patternsage rated
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Lisa Linfield

Lisa Linfield is on a God-given mission to free 1 million women from the weight and stress of money. She's a CFP, founder of a wealth management business, and podcast host of Working Women's Wealth

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