5 Mistakes People Make When Buying Life Insurance
Research shows that 40% of Americans don’t have any form of life insurance policy in place. Does this include you?
Buying life insurance is a wise route to take. However, it’s all too easy to stray off course.
Life insurance policies are designed to provide financial security to your loved ones upon your death. The money can be allocated to help reduce debt, fund someone’s retirement or even pay for a college education.
Yet, this is an industry notoriously wrought with complicated jargon and complex legalities. One wrong turn could wind up costing your family much more than you’d intended.
Today, we’re sharing the five top mistakes to avoid as you start down this road.
Ready to learn more? Let’s dive in!
1. Failing to Calculate Your Insurance Needs
One part of buying life insurance policies is deciding on a death benefit. In short, this is the payout that your loved ones will receive when you pass away.
If you’re uninitiated with this process, it’s easy to underestimate here. However, if you designated an amount that’s too small, your beneficiaries could feel the brunt of that decision.
To that end, remember to do your homework. There are myriad factors that go into a smart death benefit decision. In addition to your age, remember to take the following into account:
- The status of your health
- Your income
- Your estimated life expectancy
- Your assets
- Your debts
Especially if your children are younger and your spouse doesn’t work, you’ll likely need more than you think. Consider the long-term expenses of raising children, including college tuition.
2. Choosing Any Policy
Life insurance is life insurance, right?
Not so fast.
There are two main kinds of life insurance. These include:
- Term life insurance
- Permanent life insurance
Let’s review a little about each.
Term Life Insurance
These policies remain in place for a set period of time. Upon your death, your beneficiaries will receive a designated death benefit to help cover their future financial needs.
You can purchase term policies for the following time period increments:
- 5-year
- 10-year
- 15-year
- 20-year
- 30-year
Permanent Life Insurance
Conversely, a permanent life insurance policy will remain in place over the course of your whole life. There are a few policies under this umbrella, including:
- Whole life insurance
- Variable life insurance
- Universal life insurance
When you select a whole life insurance policy, you’re able to build cash value that you can draw against down the road. Variable and universal life insurance policies require a connection to specific investment vehicles.
Trying to buy life insurance, but unsure which policy is the right one?
If you’re stuck between a term policy or a permanent policy, take the time to consider the real reason you’re looking for life insurance coverage in the first place.
If you want a policy that will allow you to generate returns on your investment, a permanent option can be ideal. Or, if you only need enough money to cover your mortgage in the event that your spouse dies, a term option might work best.
3. Over-Prioritizing Price
It can be easy to get analysis paralysis when buying life insurance policies. As such, it’s common to laser focus on the price to make the decision easier.
You might be so intimidated by the cost of insurance that you’re second-guessing the idea altogether. Or, you might look at premium amounts and choose the lowest coverage amount to get those numbers down.
Our advice? Remember what you’re buying. There are many things you can afford to cut corners on, but life insurance isn’t it.
Of course, you will have the immediate concern of out-of-pocket costs. If these prices are impossible to meet, it’s worth taking a second look at your budget. Are there any unnecessary items you can cut to make room for this critical need?
4. Taking the First Policy You Find
We get it. Shopping for a life insurance policy is no walk in the park. However, before you choose the first policy you come across, be sure to read all of the fine print first.
As mentioned, policy price shouldn’t reign supreme, but you want to make sure you’re getting a fair deal.
This means it’s important to shop around. Don’t be afraid to compare rates, weighing the pros and cons of each, to determine which one works for you.
As you do, make sure you’re keeping your information consistent. The data you provide to one insurance provider should be the same that you give the next. This will help ensure that the quotes you compare are consistent and accurate.
5. Holding Off Too Long
Getting life insurance might not be at the very top of your to-do list. However, it’s time to move it up a little.
If you’re young and in great health, you might consider this more of a decision that your parents or grandparents need to make.
Yet, keep in mind that premiums increase as you age. In addition, as the years go by, you run a higher risk of developing a serious health condition that could render your costs even higher! It’s best to go ahead and pursue lower-priced coverage while you’re still in good health.
We Make Buying Life Insurance Foolproof
Thinking about these five mistakes can make buying life insurance feel like an insurmountable challenge. It can be that way if you’re going at it alone.
Want someone by your side to make it easier? That’s where we come in.
We’re an independent insurance practice dedicated to helping our clients navigate this tricky but essential step. Contact us today to start the process together.
