8 Big Life Insurance Mistakes and How to Avoid Them

8 Big Life Insurance Mistakes and How to Avoid Them

November 01, 2020

Life Insurance can be a bit morbid to think about, making it one of the least favorite types of insurance to discuss. But, because of this, it is also one of the most important policies to have. We know that nobody likes to think about the worrisome "but what if..." scenarios, but the whole point of insurance is to protect ourselves and our loved ones in such cases. Here are some of the more common mistakes and misunderstandings about life insurance, as well as our advice to help you make the best decision for you, your family, and your future.

The Secret Policy

 Whether it’s because you don’t trust the government or you aren’t sure about how much your spouse likes Carole Baskins, you shouldn’t keep your policy to yourself. This could prevent your beneficiary from making a claim (such as paying for funeral costs) and could mean that the money you’ve paid into it this whole time just sits in the policy. If you really don’t want to tell your beneficiary about it, you can appoint an estate planning attorney so that in the event of the policy being activated, foul play can be ruled out and the policy won’t go to waste.

The Wrong Policy

Life insurance comes in 2 main types – there is “Term Life” and “Permanent Life” insurance. Term covers you for a certain amount of time (a term, e.g. 20 years) and locks in your rate and death benefit during this time. Whereas most Permanent life insurance policies cover you for your entire life such as with Whole Life or Universal Life policies. Term life is cheaper but limited as it only locks in your rate for a set amount of time & does not build any cash value. This makes it the least expensive way to get the most coverage for your money in most cases. Permanent policies are typically more expensive but lock in your rate for good & most have the ability to build up “Cash Value” which is an investment feature that grows over time and can be borrowed from or exchanged for cash value if policy is surrendered.

The Young Beneficiary

Life insurance policies are a great way to make sure that your children are looked after in the worst case scenarios in the event of your untimely passing. However, if you pass while they are a minor then the insurance company cannot pay the benefits until a guardian is appointed. This is a costly process, both financially and with time.

The Members-only Policy

Group Insurance is sometimes offered as an incentive by employers and is a great employee benefit. But in many instances the coverage ends when your employment does, and so you and your family will be left without the benefit of its protection until another policy is gained or a traditional policy is purchased. This makes it even more important to ensure you have a policy outside of work that you have control over.

There’s Plenty of Time…

Do not put off purchasing life insurance. Everyone who needed it but never got it thought that they could do it later. Plus, it will never be as affordable for you as it is RIGHT NOW. The earlier you buy it, the cheaper it is – buying it younger and healthier is even more so.

New Day, Old Policy

It is always smart to review your policies after major life events – marriage, births, divorces and deaths. These affect who you choose as your beneficiaries, as well as the specifics of coverage and payment. Make sure that the policy is recent enough to provide the best protection for your current situation and future, not necessarily what it was when you first purchased.

Coming Up Short

Make sure to purchase the right amount of life insurance that you will need – it’s true that every little bit helps in difficult times, but it is always better to get as close to the target as possible. Tally together your long-term financial commitments and then subtract your savings and other assets, as well as your current life coverage. Keep in mind the years of income, mortgage payments, and tuition- these are major expenses that you want to be sure are looked after.

Compare and Contrast

Don’t buy the first policy you see- shop around and make sure that your requirements (and your family’s needs) are and will be met. Nobody likes to think about it, but one day this insurance will be needed to provide for your loved ones, so make sure that it can actually do so. Also, make sure that your company and agent will look after your loved ones in the unfortunate and difficult time that this policy has to be used. That is almost as important as the policy actually being able to provide for them.

If you have any questions or concerns about your life insurance policy and how much coverage it provides, give us a call at (901)388-7283! We're more than happy to help you in any way we can. You can also click here to learn more about life insurance and how it can protect you.