4 Worst Life Insurance Mistakes
If there’s one thing you want to have in order if something happens, it’s your life insurance. Buying a life insurance policy is one of the things you can do to help your family and friends after you’re gone. It can help pay for your final arrangements and ease any financial burdens that comes from settling your estate.
But there are a few things you’ll want to keep in mind when buying life insurance, here are four life insurance mistakes to avoid when making your decision:
Relying on group life insurance
Many employers are able to offer group life insurance to their employees. This kind of coverage is usually provided at one to two times your annual salary.
This is a great perk to access, but it shouldn’t be your primary means of covering yourself and your family. Most people will need more than what is offered at work to adequately cover all their needs.
In addition, the coverage might end when you move on from that job, leaving you in the precarious position of being without life insurance.
Underestimating your insurance needs
One of the biggest potential life insurance mistakes is not understanding how much you actually need. Leaving your family with too little money can put them in a compromising situation if they face paying down your debt or providing financial support to your children.
It’s important that you take the time to tally all your long term obligations – like paying your mortgage, building a college fund, or supporting a long term dependent – and factor that into your total. You can use a calculator to help you decide how much coverage you should buy.
Being secretive about your policy
Nobody likes talking about their “arrangements”, but it’s important to have those conversations with your loved ones. Choose one or two trusted people in your life and give them the details of your policy.
Even if you don’t wish to speak about the details with your family, your estate planning lawyer or financial advisor should be aware of the specifics. Your chosen executor will also need access to your policy to ensure the beneficiaries can make their claim.
Buying life insurance without doing your research
Life insurance isn’t one of those things you want to make a snap decision about when buying. You’ll want to do some comparison shopping as insurance products and costs can vary between companies. You can run into other life insurance mistakes if you don’t start out by doing your research.
You’ll also need to determine whether you want term or whole life insurance. Term can be broadly defined as coverage that only protects you for a finite time period. It tends to be cheaper and you can buy it in 10, 20 or
30 year increments.
Whole life insurance offers coverage until the client passes away. The premiums are usually fixed for life and can often act as investment vehicles as well. You can also borrow from a whole life insurance tax free, if the policy allows. But it tends to be more expensive and less flexible than term life insurance.
Term insurance will be a good fit for most people as they can tailor the insurance to fit their lives. You may only need life insurance to protect you while your children are in school. A 20-year policy is cheaper than whole life insurance and gets you the same results.
Be careful before you buy so that you can avoid the worst life insurance mistakes.
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