Did you know that nearly one-third of Americans feel as though they need more life insurance than they currently have? Insufficient coverage can have severe financial consequences. According to a recent LIMRA study, over 50% of consumers would have immediate or near immediate financial difficulty if their primary wage earner passed away. With the severity of consequences that come with selecting the wrong life insurance policy, here are some of the top life insurance mistakes to avoid.
Purchasing life insurance can seem like an overwhelming task. With all of the policies available, it may seem easier to put it off until you’re in a bind. This is one of the biggest life insurance mistakes to avoid.
A new life insurance policy will never be as inexpensive as it is today. The younger and healthier you are, the lower your premium will be. You are less of a risk for insurers because you are less likely to die of an early death.
Even if you don’t have an inherent need to purchase life insurance, it may be a good idea to consider it anyways. If you plan on having a family, purchasing your life insurance now could save you a lot of money in the future.
Selecting a policy based on price
Just because a term life insurance policy has a $5 premium, it might not be the right policy. Before selecting a policy you need to fully understand what your life insurance needs are. Know the difference between term and permanent insurance. Understand how much you will need in order to support your family in the next few decades or your entire life.
Selecting a policy based on price alone can lead you in the wrong direction. Just because you have life insurance doesn’t mean you’re fully protected. Do the research and identify the right life insurance policy based on your needs, not the price.
Lack of comparing policies
Comparing insurance policies is an important part of the life insurance process. However, contacting insurance agencies can be a bit of a chore. One insurance company may offer you a policy for $80 a month while another company offers you similar policy for $60 a month. Independent agencies can only sell you their policies and then receive a commission off of the sale.
This is why we recommend working with an independent insurance agency like JRC. An independent insurance agency can shop over 45 top-rated life insurance companies in specific fields. Essentially, they will help find you the best life insurance policy for your financial situation while providing the most affordable rate.
So, don’t spend hours and hours working with individual insurance companies. Find an independent agency to help you find the best policy.
Underestimating your insurance needs
In the 2018 Insurance Barometer Study, 44% of Millennials overestimated the cost of life insurance by 5 times. By assuming life insurance is too expensive, consumers are cutting themselves short. Even if you have life insurance, you are you may feel like you’re underinsured. Underestimating your insurance needs is a common insurance mistake.
You should purchase roughly 10 to 20 times your income of life insurance coverage. This will make sure your family is taken care of and can live the lifestyle they’re comfortable with. This is especially important if you are the primary income earner of your family. By purchasing enough insurance you can be sure to avoid this life insurance mistake.
Assuming group insurance is enough
One of the benefits employers often offer is a group life insurance policy. You may think this will foot the bill for all of your life insurance needs but you’re very mistaken. Most group insurance policies will only cover 1 to 2 years of your salary. If a death were to occur in the family, this may not be enough to pay for all of the accrued expenses and debts you own.
Meet with your Human Resources department and have them explain your benefits. Evaluate your policy and determine if you will need extra coverage. Don’t make this common insurance mistake and purchase additional coverage for your insurance needs.
Choosing the wrong insurance policy
In some cases, term life insurance may make sense. If you’re 30 and are healthy, it’s possible to receive a monthly insurance premium of $26.30 for a 20-year, $500,000 policy. If you don’t anticipate needing additional coverage after your children have left the nest and your debt is repaid, this could be a good option.
However, if you have permanent dependents or would like to leave a legacy behind to your children or a charity you’re passionate about, you may need permanent life insurance. Permanent life insurance covers you for your entire life. However, permanent life insurance can be significantly more expensive. For example, a 30-year-old female can receive a $500,000 policy for a premium of $141.20 a month.
You may be able to avoid this life insurance mistake by partnering with an independent insurance agency as well as a financial advisor to help you determine the right insurance for your family’s financial situation and needs.
Forgetting to keep beneficiaries up to date
Can you imagine if something were to happen to you and you accidentally forgot to update your beneficiaries on your policy? Let’s say you recently had a third child but forgot to account for their financial needs, wouldn’t that be a disaster?
Just like financial advisors recommend you to review your annual statements and tax returns, you should review your insurance policies as well. You could purchase a new home or have a baby within a year and forget to increase your coverage. By reviewing your insurance policy annually, you can ensure the correct beneficiaries are listed and you have plenty of coverage to support your family.
Naming your estate your beneficiary
It may be more beneficial to name a trust or an organization the beneficiary of your policy. This way your beneficiaries will receive the proceeds directly. If you name your estate the beneficiary, the proceeds will have to filter through probate. This could take quite some time depending on the circumstances.
There is also a chance this could leave your proceeds vulnerable to creditors. When you name your beneficiaries directly, they are protected from creditors.
Keeping your insurance information to yourself
Discussing finances and death can be very uncomfortable. But if you have worked hard to make sure your family is taken care of, you want to make sure they are aware of your policy. If they have no idea you had an insurance policy to protect them, they won’t know how to claim the benefit.
It may also be a good idea to share your policy information with your financial advisor or estate attorney. This way they can guide your family in addressing your financial details after you have passed. Keeping insurance information to yourself is a common life insurance mistake.
The bottom line
If you currently are uninsured or feel like your underinsured, take action today. By taking the time to do your research and evaluating your own financial situation, you can avoid these top life insurance mistakes. Contact an independent insurance agent today to discuss the best policy to meet your financial needs.
JRC represents 47 top-rated life insurance companies to make sure our clients are always matched with best option available. Call us today at 855-247-9555 to speak with an expert, or you can request an instant online quote below to compare rates from dozens of insurers in less than a minute.