Avoid these top 7 mistakes when choosing life insurance
Navigating the process of choosing life insurance can seem scary at first, but with a little guidance, you can find the perfect policy for your needs and goals. But first you have to avoid some common, potentially costly life insurance pitfalls that can arise from lack of understanding or misinformation.
Here are the top 7 mistakes that could prevent you from getting the best life insurance.
1. Not realizing you need life insurance
One of the most significant life insurance mistakes is overlooking the need for it in the first place. You might be thinking, “I’m young and healthy, so I don’t need it,” but you won’t always feel so invincible. Life can be unpredictable, and especially if you have dependents, you’re likely going to want to help ensure their financial security. At the very least, you probably don’t want to saddle your loved ones with debts or high funeral expenses. In fact, a 2022 survey by NerdWallet found that 60% of Americans with life insurance decided to purchase a policy to cover final expenses.
2. Putting off your life insurance purchase
Another major mistake when choosing life insurance is procrastination. In fact, according to the NerdWallet survey, 75% of Americans said they have hesitations about buying life insurance. Many delay this purchase, assuming it is not immediately crucial. However, life insurance premiums tend to get higher with age and deteriorating health conditions. By getting a policy while you’re young and in good health, you may benefit from more affordable premiums.
3. Not getting enough life insurance coverage
When choosing life insurance, it's easy to opt for the least expensive policy without considering the extent of coverage. As the NerdWallet survey showed, 53% of Americans consider a low monthly payment the most important feature of a life insurance policy. However, it’s important to remember the primary goal of life insurance is to help offer financial protection to your dependents. If your policy's coverage is insufficient, it may not fulfill its purpose. Therefore, it's crucial to strike a balance between the cost of the policy and the protection it affords.
Pro Tip: When choosing the best life insurance, consider potential family expenses in your absence, including mortgage or rent payments, education expenses, debts, and daily living costs. The rule of thumb is to secure coverage 10 to 15 times your annual income (although your circumstances might require more or less).
4. Missing the policy details
It’s so important to read the fine print or ask questions when you’re opening a life insurance policy. Not fully understanding your policy can lead to regrettable life insurance mistakes. First and foremost, you want to understand the type of policy you're purchasing, the coverage, exclusions, and if/how the premium might fluctuate over time. An insurance agent can clarify these details, but ultimately, it’s on you to get the answers you need.
5. Never revisiting your policy
Even if you do your homework and get the best life insurance policy, it’s a fact of life that your situation could change over the course of a few years. Life transitions such as marriage, divorce, having children, getting a new job or a significant salary increase, or retirement can impact your life insurance needs. As major changes occur, take some time to do a policy review. That way, you can reassess your needs and adjust your policy accordingly.
6. Not being totally honest with your medical history
As tempting as it might be to omit information or inaccurately portray your medical history to secure lower premiums, don’t do it. If you’re caught at some point down the line, the insurance company can deny future claims or cancel your policy. Not to mention that it’s fraud! Remember, you’re signing a contract, so it’s important to be as truthful with your medical history as you would with any other personal details on a financial application.
7. Not thinking through your beneficiaries carefully
Errors in beneficiary designation can lead to unintended consequences, or at the very least, a headache when a loved one tries to file a claim. Make sure your beneficiaries are named clearly with correct spellings and social security numbers. Also, choose contingent beneficiaries as backups. You can also make updates to your beneficiaries if life circumstances change, such as a marriage, divorce, or birth of a child, so be sure to revisit your policy should your wishes change.
Choosing the best life insurance policy tailored to your needs will help secure a financial future for your loved ones. Don’t let policy pitfalls or a hasty decision mess up your plans. Speak with a trusted insurance professional or financial advisor to help you get through the life insurance process smoothly and error-free.
ChatGPT was used for idea generation, but the author made significant modifications and takes ultimate responsibility for the content