Biggest Life Insurance Mistakes
For anyone who has purchased life insurance, few would argue that it is one of the most critical financial moves they could make. Yet, many people, fail to give their life insurance purchase the meaningful consideration it requires. A life insurance purchase is for life, which means there are no “small” mistakes when purchasing it, only big, costly ones. Life insurance is meant to bring a family ultimate peace-of-mind, so it’s important to avoid the biggest life insurance mistakes.
Mistake #1 - Not Grasping the True Purpose of Life Insurance
Most people know they need to buy life insurance - to pay off debt, provide an income for surviving family members, pay for final expenses, etc. These are the numbers behind the life insurance need, and they certainly are enough to validate the purchase. From your family’s perspective, however, buying sufficient life insurance is the ultimate act of love. There is absolutely nothing else you can give them that will provide the peace-of-mind knowing their needs will be met. That’s the real reason we buy life insurance, and for that, it is priceless.
Mistake #2 - Not Buying the Right Amount
There are few things people dislike more than the feeling they own too much or too little life insurance. In either case, they never really enjoy the peace-of-mind its purchase is to suppose to bring. Using rules or formulas (i.e. buy 10 times your income in coverage), can never address the issue of whether you own too much or too little. With your family’s financial security at stake, there really is no room for guessing how much life insurance you need.
Just the facts please...
Every family has unique needs; however, they all have a certain amount of debt that needs to be paid; life style needs that require a certain amount of income; and important family goals, such as a college education for the kids, that need to be met. That all adds up to a very specific number. You may have a certain amount of capital available, but once that’s subtracted from the total capital need, there is a gap, and that gap is your life insurance need. And if the need is going to last for a long while, inflation will only widen the gap. Those are the facts, and your life insurance coverage should reflect the facts, as well as your desire to provide the ultimate peace-of-mind for your family.
Mistake #3 - Buying the Wrong Kind of Policy
With hundreds of different types of policies to choose from, finding the right one to meet your specific needs, both now and in the future, is a daunting task. Unfortunately, many people try to streamline the process by simply surfing for the cheapest quote for a term life policy. Or, they may rely solely on the life insurance agent from XYZ Life Insurance Company who only has its brand name policies to sell. If it’s done right, your life insurance purchase is forever, and, you may not get another chance to purchase another policy, which why thoughtful consideration needs to be given to the type of policy you really need.
Term life insurance is a great choice if you know when your need for life insurance will disappear. It assumes that, at some point in the future, 10, 15, 20 or 30 years out, you will have accumulated sufficient capital on your own to provide for your family’s security. But, what if you don’t, and what if your need for protection continues. Buying life insurance later in life can be expensive, especially if you have developed any kind of health condition.
Whole life insurance can be more expensive than term life insurance; however, if you recognize that your need for insurance may continue beyond 20 or 30 years, it can be a much more cost-effective way to own life insurance over the long term.
There are many types of life insurance policies in between term and whole life, including some that effectively blend the two for the best of cost efficiency and long term protection. Don’t settle for expediency in choosing the type of coverage your family needs. Give your family the full consideration they deserve in planning the life insurance solution they actually need.