Avoid These 6 Common Life Insurance Mistakes
Life insurance is designed to minimize the financial pain left behind by the passing for your loved ones, during a time when the last thing on your mind is money. Life insurance policies are difficult to understand, so it’s essential you steer clear of common problems so you can secure a policy that is catered to you. When shopping for life insurance, keep these tips in mind to avoid making costly mistakes.
Don’t Rely on Group Insurance.
Most employers offer group life insurance as a benefit, but it shouldn’t be your only form of life insurance. Group life insurance usually only pays one to two times the covered person’s annual salary. That is not enough for most families. Employer insurance also ends when you leave the company, which means you may not have it if you unexpectedly lose your job.
Never Buy a Policy Without Shopping Around.
Life insurance quotes for the coverage you need will vary wildly across different companies. The range can be in the hundreds of dollars for your average 30-year-old non-smoker. Shopping around for life insurance allows you to compare prices and consider the strength of the company. Strong ratings mean the company will pay out for the death claim when it comes.
Understand Life Insurance Policies.
Term life insurance and whole life insurance are vastly different in coverage and costs. Term life insurance covers you for a set number of years at a specific rate, while whole or universal life insurance is for life. Whole life insurance often features an investment component that allows the cash value to be borrowed against. The type of life insurance you need will depend on your financial situation and whether or not you have any dependents. You can speak with a qualified financial advisor to help you make these decisions.
Buy All the Coverage You Need.
Many people make a mistake when purchasing life insurance and don’t buy enough coverage. To avoid this common mistake, you should look at all of your financial obligations. Add up obligations like a mortgage, and your child’s college tuition money, child-care expenses, car payments, and other debts. This value plus your annual income multiplied by the number of years you want coverage should be the full value of your life insurance policy.
Don’t Name a Minor as a Beneficiary.
Many people buy their life insurance policies for their children’s benefit, but naming them as the beneficiary might not be a good idea. If you pass while they are still a legal minor, then the insurance company cannot pay out benefits until the court appoints a guardian. That takes additional time and money in court appearances and fees.
Don’t Keep it a Secret.
Many people don’t like to think about their death, let alone discuss it with their loved ones. However, someone should know about the policy so the beneficiary can make their claim. If your reasons for not disclosing it are personal, you can reveal the information to your lawyer, estate planner, financial advisor, or anyone you can appoint as your personal executor of your estate.