Life insurance is essential to make sure that loved ones are provided for in the event that you aren't around to fulfill that role. Making a mistake with a life insurance policy can cause issues down the road for those very people who are meant to be protected. Here are just a few of the most common mistakes that people make with life insurance policies and how you can avoid these missteps.
Relying on a Group Life Insurance Policy
Many employers provide free group life insurance up to one or two times annual salary. While this is a great benefit, the limits aren't sufficient as a sole life insurance policy. Beyond that, if you leave your job for any reason, you will also forfeit that life insurance coverage. There are affinity groups that also say that they provide discounts on group life insurance. Again, you'll need to maintain membership in that group to keep the insurance and the rates for these group policies aren't always less than what you could find with an individual policy.
Not Having Enough Insurance
One of the biggest mistakes that people make with life insurance is not having enough of it. People are underinsured for a variety of reasons, but some of the common ones are that there is a misconception about the cost of insurance, and a proper needs assessment hasn't been completed. In fact, a term life insurance policy is much more affordable than most people think. It's important that you take the time to properly determine your future needs so that you purchase enough insurance to cover those costs.
A life insurance policy should be purchased early and at
appropriate limits to meet your family's needs.
Waiting Too Long to Purchase Life Insurance
Despite knowing that they need insurance, Americans continue to put off purchasing an insurance policy. According to the 2015 Insurance Barometer Study, 43% of people surveyed admitted that they would suffer financially within six months if their family's primary wage earner died. Yet, 54% of those questioned said they had no plans to purchase insurance in the next year. Interestingly, insurance is much more affordable the younger you are when you buy a policy.
Not Keeping Your Policy Updated
A common mistake with life insurance policies is that people purchase them, file them away, and then forget about them. Unfortunately, years pass and major life events happen such as marriage, divorce, remarriage, births, and death, and the persons listed as beneficiaries on the original policy are either no longer around or no longer the person that you would wish to receive the benefit. Most experts recommend that life insurance policies and other estate matters be reviewed every few years to ensure that they remain up to date.
Deciding to purchase a life insurance policy is one of the most important estate planning decisions you can make. As with most other financial decisions, it's important to plan a life insurance purchase carefully and avoid these common pitfalls so that your loved ones are properly protected. Contact us with any questions, to start a simple needs assessment, or to request a quote.