Are you considering buying life insurance policy for yourself and your spouse, and you want to know the top life insurance mistakes you must avoid like a plague?
If your answer is yes then we’ve got something interesting to share with you. By the time you are doing reading this article, you will not only learn about these horrible life insurance mistakes but you will also learn exactly how to avoid them.
Life insurance policy is meant to protect your loved ones but the opposite can be the case if some mistakes occur.
Here are the top 10 mistakes you should not make when buying a life insurance and how to avoid them.
1. Don’t Choose the Wrong Type of Insurance
There are two types of life insurance: term life insurance and permanent life insurance. While the former covers you for a specified amount of time, the latter covers you for a lifetime.
Term life insurance is cheaper. A 25-year-old nonsmoker can get $300,000 of term life coverage for 25 years less than $3 weekly.
Permanent life insurance, on the other hand, features and investment component, called cash value, that accumulate with time. One can borrow from the cash value or surrender the policy for the money.
Permanent life insurance is more expensive because of the life coverage and the cash value it offers. Unlike term life insurance, a 25-year-old nonsmoker can get $300,000 permanent for about $3,000 annually.
2. Don’t Keep Your Life Insurance a Secret
Keeping your life insurance a secret can deprive the beneficiary of making a claim. Those who need to be aware of your policy include your nuclear family members, an estate planning attorney, a financial advisor, your estate executor of personal representative.
3. Don’t Own the Policy If the Estate is Large
Owning a life insurance policy, if it’s large enough to be federal estate tax, is a huge mistake you shouldn’t make.
4. Don’t Name Your Estate as the Beneficiary
If you make this mistake, your estate beneficiary won’t receive the benefits until the end of the legal probate process. In many cases this can take months or even years. Also, your life insurance money could be susceptible to claims by creditors.
The right beneficiaries should be a trust, an organization, or the people you want to receive the proceeds.
5. Don’t Name a Minor as a Beneficiary
You might buy the policy for your children’s benefit, but naming them as beneficiaries on the policy when they’re still minors is a bad idea. If you die before they’ve reached legal adulthood, the life insurance company can’t pay benefits until the court appoints a guardian. That takes time and money for attorney fees and court costs.
6. Don’t Rely Solely on Group Insurance
Group life insurance policy is good for employee benefit but it’s not ideal for anyone who needs life insurance policy. In many instances, the coverage ends when you leave the company, leaving your family without the financial safety net.
7. Don’t Procrastinate
The earlier you buy a life insurance the cheaper; Life insurance rates increase as you age and develop health conditions, such as high blood pressure. You might think there’s plenty of time but we all are uncertain when life happens.
8. Don’t Forget to Update Your Beneficiary Designations
You should review coverage after major life events, such as marriage, divorce, remarriage and having a baby. Financial advisors recommend that you review your policies every few years to make sure they provide enough protection, and that you update beneficiaries if necessary.
9. Don’t Buy the Wrong Amount of Coverage
To get to the right number for how much life insurance needed, add up your long-term financial obligations then subtract your current life insurance coverage, if you have any, and liquid assets such as savings. College tuition and other child-related expenses, the mortgage and other debts and your annual income multiplied by the number of years you’d want it replaced are also inclusive.
10. Don’t Buy a Policy Without Shopping Around It
Besides comparing prices, it’s also important to check the financial strength rating of any company you consider. You want the strongest possible ratings to make sure your company will be able to pay out an eventual death claim.
You’re good to go if you avoid these mistakes.