Avoid These 10 Life Insurance Mistakes

Watching all the superheroes in the movie theater makes people feel like heroes.

You’ve probably imagined yourself, as a child or as an adult, riding in a souped-up black tank-mobile while scaring the living daylights out of laughing clowns while wearing a bat costume.

Dreams about flying and rescuing the lover in distress while getting a kiss had you feeling perky in the morning. Thoughts of being invincible help boost your confidence that nothing can stop you.

Until, of course, reality comes back in the form of a terrible loss.

Dealing with an untimely demise not only impacts emotions, but also creates a financial impact on the family. A spouse who’s the sole or partial breadwinner in the family creates income insecurity. When they are gone, where the money will come from to pay for funeral costs, daily expenses and childcare costs turns into a guessing game with no winners.

Life Insurance is a Financial Lifesaver… Except When It Isn’t

Obtaining life insurance provides your family with financial security during tough times. Loved ones get everything they need covered by the policy’s compensation terms offered by the life insurance company.
Life insurance not only provides funds when a breadwinner passes, but also when a stay-at-home parent has an unfortunate demise to make the remaining financial obligations easier for the other spouse. Yet potential pitfalls lie in wait when you aren’t careful.

Many people fall into the trap of making life insurance mistakes. These mistakes create chaos as families lose inheritances, homes, and even jobs. Identifying the 10 main life insurance mistakes everyone makes allows you to avoid making the same mistake yourself.

Mistake 1: Not Thinking About Life Insurance

That procrastination bug whispers in your ear about having enough time to get life insurance. Five years pass and then ten years as you still don’t buy it. Unfortunately, an untimely demise may happen at any time. It doesn’t wait until a person reaches retirement or is in a nursing home.

Mistake 2: Failing to Buy Enough Insurance

What many find surprising is that the life insurance purchased years ago won’t cover things today. Family dynamics change along with the cost of living arrangements.

Mistake 3: Not Getting Both Spouses Covered

You might get the breadwinner in the house covered. Yet what about the stay-at-home spouse? This spouse contributes to the household in many ways, such as providing childcare, schooling and house upkeep that can be translated into an economic value.

Mistake 4: Purchasing the Wrong Type

Life insurance policies come in many forms and coverages. Three main types of policies include group life insurance (employer provided), permanent life insurance (coverage for life) and term life insurance (specific coverage period).

Many people fall into the trap of making life insurance mistakes. These mistakes create chaos as families lose inheritances, homes, and even jobs.

Mistake 5: Not Shopping For Rates

Every life insurance company offers different rates based on a number of factors. So you see quotes based on age, health of the applicant, coverage term, and policy compensation. When you skip comparison shopping, you miss out getting the best policy based on your particular circumstances.

Mistake 6: Cancel Policy Too Soon

Once the kids turn into adults and become financially independent, you might decide to cancel the policy to save money during retirement. Yet canceling too soon, when the death benefit is bigger than the premium’s annual costs, could still be a financial mistake.

Mistake 7: Not Telling Anyone About the Policy

Insurance policies feel like the boogeyman in the room that nobody wants to talk about. You rather talk about something else instead of the possibility of death, or may not feel comfortable talking about personal finances. However, if nobody knows about the life insurance policy, who will make the claim if an untimely demise happens?

Mistake 8: Naming Children as Beneficiaries

Minors named as the beneficiary won’t be able to receive benefits. Life insurance companies only pay out to children when they reach adulthood, so a guardian will be named by the court.

Mistake 9: Not Making Policy Updates

Life circumstances change all the time. Another child comes along. A divorce happens. Someone in the family gets married. All these scenarios require an update to the policy or the life insurance company won’t pay out enough or to the right person.

Mistake 10: Forgetting to Prepare for Rate Increases

Life insurance companies typically lock in insurance premiums for an initial period for term life policies. After the stated period, those rates increase. Not being prepared for the rate increase places you in a bind to make payments when not being careful.

Summary

Always take time to think about getting life insurance early in life. This scenario allows you to avoid costly mistakes such as not buying the right policy, getting enough coverage, or also covering the spouse. You also get time to prepare for rate increases, name the appropriate beneficiaries, rate shop, prepare for rate increases, and make the necessary updates. Take the right steps and get financial assistance when purchasing life insurance.