3 Dumb Life Insurance Buying Mistakes and How To Avoid Them
People make all sorts of mistakes when buying life insurance. Some buy too little. Some buy the wrong type of policy and others buy for the wrong time frame. Here are the 3 Dumb Life Insurance Buying Mistakes and How to Avoid Them.
Dumb Mistake #1: Buying The Cheapest Term insurance You Can Find.
Term insurance is the least expensive type of insurance you can buy. Term insurance covers you for a specific period of time, such as 10, 20 or 30 years. Most people choose 20 years. Once the term is over and you’re still living, your life insurance policy ends. In other words, you have no more coverage.
Is that good? Well, it depends on where you are in life. Many people take a snapshot of their future life when they first think about buying life insurance and figure in 20 years from now, their mortgage will be just about paid, their kids will be off to college and so on.
So no need for life insurance after that, right? Well, maybe or maybe not. Sometimes, life doesn’t go as planned. Maybe you outgrew your first home when the kids came along and needed to buy a bigger home. Or maybe that dream job you were going to retire at didn’t work out. Now you have a new career and retirement is even further away. Life throws all of us a bunch of curves.
The point is, you shouldn’t buy the cheapest life insurance policy. You should buy a policy that gives you options. Consider a term policy that allows you to convert to a permanent policy in the future such as whole life or universal life. This type of term policy may be a little more expensive than the cheapest term policy but it will give you flexibility should life throw you a curve ball.
Also consider insurance company ratings when shopping for a life insurance policy. A stronger financially rated company with AAA ratings might be a bit more expensive than an A rated company. It could be worth the few extra bucks a month for the extra financial security because companies never go out of business, right?
So don’t shop for your life insurance policy by just comparing prices. Look for a policy with some flexibility.
Dumb Mistake #2: Buying a Life Insurance Policy and Putting It In Your Drawer.
Most people buy a life insurance policy, stick it in their drawer or file cabinet and forget about it. This is a dumb mistake because life insurance, like any financial instrument needs to be reviewed from time to time. Chances are the agent you originally bought your life insurance from is out of the business by now because the failure rate in the life insurance business is a whopping 82%, but that doesn’t mean you shouldn’t have your policy reviewed.
If you don’t have an agent, call the life insurance company directly and check to make sure your beneficiaries are up to date. Did you have another child since you bought your policy? Then that child should be added to the list of beneficiaries. Did you get divorced and is your ex-wife still named as a beneficiary? Then make sure she is not on the beneficiary page or if you die, she will get the insurance proceeds.
Don’t rely on your will here because the beneficiary page trumps any will or estate plan you might have made to make sure your loved ones are taken care of.
Dumb Mistake #3: Relying on Life Insurance Coverage From Your Employer
The average worker in the United States stays at one job for less than 5 years. This means in your working lifetime if you are like most people, you will have worked for 5 or 6 employers.
Relying on your employer to provide you with life insurance is not only a mistake, but it’s just dumb. Sorry to be blunt here.
If your employer has a company life insurance program and offers you life insurance as a free company perk, fine, by all means take it. But don’t opt-in for the supplemental life insurance program because it’s…
a) More expensive than buying your own policy if you’re healthy (more on this in a minute)
b) Probably not portable when you leave your job or get laid off
and C) Not enough coverage because group life insurance plans have limits of coverage
There is one reason for you to rely on life insurance from your employer and that only reason is, you have a serious health issue that precludes you from qualifying for your own life insurance policy. If you are reasonably healthy then buy your own life insurance policy and never, ever rely on life insurance from your employer.
Okay, you made it to the end and thanks for reading this post. What’s next? Well, if you want an honest quote or second opinion about your life insurance, you can give me a call at: 800-514-3513.