Are you about to buy life insurance? Shop carefully. Make your choice with insight from someone who understands the ins-and-outs of life insurance, as it may help you avoid some of these all-too-common missteps.
Buying the first policy you see.
Anyone interested in life insurance should take the time to compare a few plans – not only their rates, but also their coverage terms. Supply each insurer you are considering with a quote containing the exact same information about yourself.1
Buying only on price.
Inexpensive life insurance is not necessarily great life insurance. If your household budget prompts you to shop for a bargain, be careful – you could end up buying less coverage than your household really needs.1
Not reviewing/updating your current policy.
As life goes on, so does your need for life insurance. If you bought a policy when you were first married, your need has almost certainly increased after the third kid was born. Likewise, Once the kids leave the nest and have made their way through college, the need for a death benefit will probably go down in value.
Failing to inform heirs that you have a policy.
Believe it or not, some people buy life insurance policies and never manage to tell their beneficiaries about them. If a policy is small and was sold many years ago to an association or credit union member (i.e., burial insurance), it may be forgotten with time.
Did you know that more than $7 billion in life insurance death benefits have yet to be claimed? That figure may not shrink much in the future, because insurers have many things to do other than search for “lost” policies on behalf of beneficiaries. To avoid such a predicament, be sure to give your beneficiaries a copy of your policy.2
Failing to name a beneficiary at all.
Designating a beneficiary upon buying a life insurance policy accomplishes two things: it tells the insurer where you want the death benefit to go, and it directs that death benefit away from your taxable estate after your passing.3
Waiting too long to buy coverage.
Later in life, you may learn you have a serious medical condition or illness. You can certainly buy life insurance with a pre-existing health condition, but the policy premiums may be much larger than you would prefer. The insurer might also cap the policy amount at a level you find unsatisfactory. If you purchase a guaranteed acceptance policy, keep in mind that it will probably take 2-3 years before that policy is in full force. Should you pass away in the interim, your beneficiaries will probably not collect the policy’s death benefit; instead, they may receive the equivalent of the premiums you have paid plus interest.3
Not realizing that permanent life insurance policies expire.
Have you read stories about seniors “outliving” their life insurance coverage? It can happen. Living to be 90 or 100 is not so extraordinary as it once was.3
Permanent life insurance products come with maturity dates, and for years, 85 was a common maturity date. If you live long enough, you could outlive your policy. The upside of doing so is that you will receive a payout from the insurer, which may correspond to the policy’s cash value at the maturity date. The downside of outliving your policy? If you want further insurance coverage, it may not be obtainable – or it could be staggeringly expensive.3
Take your time when you look for life insurance and compare your options.
The more insight you can draw on, the more informed the choice you may make.
If you have questions about an existing life insurance policy or would like to look at what your possible options are, contact your Values First advisor today to see how we may be able to give some guidance.
1 – smartasset.com/life-insurance/5-mistakes-to-avoid-when-buying-life-insurance [4/11/18]
2 – kiplinger.com/article/saving/T063-C032-S014-could-unclaimed-money-be-yours.html [10/13/17]
3 – nasdaq.com/article/4-errors-to-avoid-with-your-life-insurance-cm868133 [10/30/17]
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