Common Life Insurance Mistakes to AvoidQuick: how much life insurance coverage do you have? If you can’t name a precise dollar amount, you’re not alone. For a variety of reasons, too many people put off reviewing their life insurance needs until “tomorrow.” But waiting too long can make it more expensive or difficult to obtain. Here are five other common life insurance mistakes to avoid.
1. ASSUMING YOUR EMPLOYER’S PLAN IS GOING TO BE ENOUGH
The most-generous employer-provided life insurance plans rarely provide more than five years’ salary, and most offer much less. What will your beneficiaries do in five years, when the income stops? The suggested minimum is either 10 years’ salary, or five years’ salary plus enough to cover your current debts and larger anticipated expenses.
2. THINKING YOU CAN’T AFFORD IT
Value alone makes term life insurance the best option for the overwhelming majority of people. Since term life premiums are about one-quarter the cost of those for whole life, a term life policy allows you to bump up the benefits for your survivors, while offering reasonable rates on premiums.
3. SELECTING A TERM THAT’S TOO SHORT
Every insurance agent has a story about the sticker shock a client felt when it was time to purchase a new term life policy, after an old term expired. The cost of life insurance premiums generally double for every 10 years of age, with greater increases if your health declines even slightly. Your best bet is to lock in your current rate for as long as you know your family will have mortgage debt, college tuitions or other significant expenses.
4. FAILING TO SEE LIFE INSURANCE AS AN ASSET
Most people know life insurance benefits your survivors after you die, but few understand how it can help you while you are alive. If your financial situation or health were to take a turn for the worse, a disability waiver, conversion or life settlement could help soften the financial blow.
5. BEING SCARED OFF BY A MEDICAL EXAM
No-medical-exam policies, such as instant-issue and guaranteed-issue life insurance, can cost more, but are a great option if you need coverage quickly or are too busy to go through the traditional process. If you do have a health condition, look to maximize your employer coverage first.