If your death would leave your family in a serious financial bind, life insurance can offer a degree of protection. It can help pay the mortgage or put your children through college. Like other insurance products, there are lots of options and fine print. The stakes are high and you want to ensure you are purchasing a policy that will keep your family afloat financially should they lose your income. Here are some top mistakes people make when buying life insurance.
The longer you wait to get life insurance, the higher your premium will be. Even if you are in relatively good health, the mere fact that you are older makes you more likely to die during the term of the policy and companies will charge you more; you also run the risk of developing health problems and trying to obtain coverage when you are in poor health can result in much higher premiums.
Relying on Employer Coverage
Many companies offer their employees life insurance under a group plan; this is great, but for many people, will not be nearly enough money for your family's needs. This is a nice perk in your benefits package, but it should not be your sole form of protection.
Seeing the Purchase as a One-Time Thing
Financial situations change over time, the cost of living rises, people have more children, and the list could go on and on. You should not view your purchase of life insurance as a one-time thing that you no longer need to think about once you sign the papers. Every few years, you should assess your current circumstances and see if you need more coverage.
Not Receiving Medically Underwritten Coverage
If you are in good health, and not getting a policy whose rates are based on a medical exam, you may be paying more than you need for coverage. Companies that do not require medical exams are spreading the mortality risk among their pool of policyholders and averaging the costs. This means the person fit as a fiddle is paying the same amount of money as someone who may drop dead any moment.
Not Getting Enough Coverage
Without a hard look at your finances and life, you may be lowballing the amount of coverage you need to adequately provide for your family. People tend to look at the big-ticket issues like mortgages and other large debts, college education and the like. But, there are lot of other expenses that can quickly add up. Would you need to pay for childcare or for someone to help maintain your home? Would your family now have to pay for their own heath insurance? You will find a variety of suggestions for how much coverage to get. An experienced agent can help you with calculations to settle on a number you feel comfortable with.
Not Insuring Non-Working Spouses
We primarily see life insurance as a tool to replace income, but do not underestimate the financial value of a non-working spouse. Just because he or she is not contributing monetarily does not mean the absence would have no financial impact on your life. Right now, they are doing a lot of things for free that you would need to pay someone to do in their absence, like childcare or caregiving for an elderly parent.
Putting Too Much Stock in Policy Illustrations for Permanent Coverage
If you are considering a permanent life insurance that comes with a cash value component, tread carefully when it comes to policy illustrations; agents use these illustrations to demonstrate the cost of the policy and how much cash value it is expected to accrue over time. Remember that these are just projections and not fact. Unless specifically stated that these are guaranteed returns, they are anything but. Do not walk away thinking that amount of money will eventually be in the bank.
Kelli Cooper is a freelance writer who blogs about all things insurance; if you are in need of coverage in Canada, she recommends you visit Kanetix for quote comparisons.