7 Common life insurance mistakes to avoid
The decision to purchase life insurance is an important one. It can provide financial support for those who rely on you in the event of your death. However, understanding what is right – or wrong – when it comes to life insurance can be overwhelming. That’s where an advisor can help.
Here are 7 common life insurance mistakes to avoid:
-
Relying solely on group insurance/employer-provided insurance
Having life insurance through your employer’s benefits package is good. But most corporate plans offer only a basic amount and type of life insurance. And it is available only as long as you work at the company. So, if you change jobs, quit, or get laid off, that coverage will end. That’s why it’s important to have your own life insurance policy that you control. You can still have your group insurance; just consider it an additional option. -
Choosing the cheapest life insurance option instead of the best one
There are two main types of life insurance, each with features to meet different needs:
-
Temporary coverage
- Low initial cost
- Fixed payments
- Option to convert to permanent
- Term life insurance
- Lifetime coverage
- Higher cost
- Flexible payments
- Opportunity to build cash value
- Permanent life insurance
Term life insurance is usually cheaper initially than permanent life insurance. However, term life insurance only covers you for a limited time – for example, 10 or 20 years. The cost of term life insurance typically increases when it is renewed. The insurance company pays the benefit if the policyholder dies during the term. In contrast, permanent life insurance will cover you until death, provided you pay your premiums, and while the initial cost may be higher than term life insurance, it will not change.
Term life insurance may be a good option if you have short-term needs. For example, if you have debts like a mortgage and a family or spouse who depend on your income. But if you need lifetime coverage, whole life insurance is likely the better option, if you can afford it. This will help ensure that your estate fees are covered and that you can leave money for your loved ones.
- Underestimating the amount of life insurance you need
It’s important to realistically assess how much coverage you need:
- Funeral expenses
- Legal fees
- Unpaid debts, including mortgage
- How much money your family will need to maintain their standard of living
- Helping your church, university, hospital, or any charitable organization you supported during your lifetime
-
Not telling anyone that you have life insurance
If you don’t tell anyone that you have a life insurance policy, no one will be able to come forward to make the claim. Therefore, it’s important to keep a record of your policy and ensure your family knows where it is. -
Not updating your beneficiaries
It’s important to designate your primary beneficiary and have a contingent beneficiary. It’s also essential to review your beneficiaries with your advisor after major life changes. This could include marriage, divorce, the birth of a child, or the death of a beneficiary. This will ensure that the funds go to the loved ones you want when the time comes. -
Not reviewing your policy and needs
It’s crucial to periodically review your life insurance policy, especially after major life events. Your life insurance needs will change over the course of your policy. All these events play a role in determining how much coverage you need. So, be sure to review your policy with your advisor at least once a year. And if necessary, you may purchase additional coverage. If you need advice, feel free to contact me at 204-807-1705, and we can discuss reviewing your policies. -
Waiting to buy life insurance
Delaying the purchase of life insurance is a fairly common practice. Many people think they need to wait until they get married, have children, or buy a home. But purchasing a policy at a younger age is generally less expensive. You’re also less likely to have health issues that could make insurance expensive or render you ineligible for coverage. So, the sooner you buy life insurance, the better.
If you have any questions or would like to discuss your policy, please contact me at 204-807-1705. I’d be happy to help!
