Life Insurance is a Financial Lifesaver… Except When It Isn’t
Obtaining life insurance can help provide your family with financial security during tough and sometimes unexpected times.
Life insurance not only provides funds when a provider within a family passes but also when a stay-at-home parent has an unfortunate demise to make the remaining financial obligations easier for the other spouse.
However, many people fall into the trap of making life insurance mistakes. These mistakes can often times create chaos as families lose inheritances, homes, and even jobs. Identifying the 10 main common life insurance mistakes allows you to avoid making the same mistake yourself.
Mistake 1: Not Thinking About Life Insurance
Not thinking about life insurance early enough could cause big problems in the future. Unfortunately, an untimely demise may happen at any time. People that are not prepared with life insurance coverage could leave unexpected financial burdens on their families.
Mistake 2: Failing to Buy Enough Insurance
What many find surprising is that the life insurance they purchased years ago may not cover things today. Family dynamics change along with the cost of living expenses.
Mistake 3: Not Covering Both Spouses
It is important to obtain coverage for both heads of the household as contributions to the household, such as providing childcare, schooling, and home upkeep, can be translated into economic value through life insurance.
Mistake 4: Purchasing the Wrong Type
Life insurance policies come in many forms and coverages. Three main types of policies include group life insurance (employer-provided), permanent life insurance (coverage for life), and term life insurance (specific coverage period).
Mistake 5: Not Shopping Around For Rates
Each life insurance company offers different rates that are based on a number of factors. Quotes are based on age, the health of the applicant, coverage term, and policy compensation. When you skip comparison shopping, you miss out on getting the best policy based on your circumstances.
Mistake 6: Canceling the Policy Too Soon
Once kids turn into adults and become financially independent, you might decide to cancel the policy to save money during retirement. However, canceling too soon, when the death benefit is larger than the premium’s annual costs, could be a financial mistake.
Mistake 7: Not Telling Anyone About the Policy
Insurance policies feel like the boogeyman in the room that nobody wants to talk about. You would rather talk about something else other than the possibility of death, or you may not feel comfortable talking about personal finances. However, if nobody knows about your life insurance policy, who will make the claim if something happens?
Mistake 8: Naming Children as Beneficiaries
Minors named as a beneficiary will not be able to receive the benefits. Life insurance companies only pay out to children once they reach adulthood, so a guardian will be named by the court until that time.
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Mistake 9: Not Making Policy Updates
Life circumstances change all the time. Another child comes along. A divorce happens. Someone in the family gets married. All of these scenarios require an update to your policy or the life insurance company may not pay out enough or to the right person.
Mistake 10: Forgetting to Prepare for Rate Increases
Life insurance companies typically lock in insurance premiums for an initial period for term life policies. After the stated period, those rates increase. Not being prepared for the rate increase could put you in a bind to make payments if you’re not careful.
Always take time to think about getting life insurance early in life. This helps you to avoid costly mistakes, such as not buying the right policy, obtain enough coverage, or covering a spouse. Ensure you are naming the appropriate beneficiaries, rate shop, prepare for rate increases, and review regularly making the necessary updates. Take the right steps when purchasing life insurance.