According to a Bankrate Money Pulse survey from June 2015, nearly 50 percent of American households dont have any life insurance to speak of. Among those who do have it, nearly half are underinsured. The survey also notes that many policyholders dont understand how much life insurance they need or how much they should be paying, which can lead to serious mistakes during the buying process. Here are seven of the most common mistakes to avoid before, during and after you buy a life insurance policy.
- Being less than honest on your application. It can be tempting to provide misleading personal information on your application to try and receive a better premium. However, doing so could put your familys financial security at risk. Its important to be completely honest on your application, because false information can lead to inaccurate quotes and, even worse, grounds for a life insurance company to deny a claim.
- Procrastinating. The younger you are and the better your health, the more affordable your life insurance premiums are likely to be. As you age and become more susceptible to medical conditions and lifestyle- or work-related accidents, your life insurance rates will only increase. Thats why waiting until you are older to buy a policy can harm you and your family.
- Miscalculating your coverage amount. Failing to purchase an adequate amount of life insurance coverage can severely compromise your familys financial future in the event of your passing. Thats why it is so important to take the time to calculate how much your dependents would actually need to cover ongoing expenses such as food, clothing, mortgage payments, debts, education, and healthcare.
- Relying solely on group life insurance. An ancillary mistake to miscalculating your coverage amount is relying solely on a group life insurance policy. While group life insurance is a wonderful employee benefit, the coverage amounts that most employers provide arent enough to protect your family for more than a year or two. Moreover, most group life insurance policies terminate if and when you leave the company. Thats why it pays to have an individual life insurance policy, which will protect your dependents for as long as you pay your premiums.
- Failing to properly designate a beneficiary. Beneficiary designation is a crucial and often overlooked aspect of buying a life insurance policy. Naming a minor or your estate as a beneficiary can lead to delays in claims processing, not to mention attorney fees, court costs and interference from creditors. Forgetting to update your beneficiary designations after major life events like marriage, divorce or having a baby can also threaten the financial security of those you leave behind. Thats why its a good idea to consult with an attorney who is familiar with wills, trusts and estate taxes before designating a beneficiary for your life insurance policy.
- Forgetting to update your policy. Chances are your life insurance needs will change over the lifetime of your policy. Milestones like marriage, divorce, having children, changing jobs, and moving into a new home can have a profound effect on how much coverage you need. Typically, a family with young children will require more coverage than a retired couple whose children have long since left the nest. To prevent overspending and ensure your family is adequately protected, take the time to periodically reassess your life insurance needs.
- Buying a policy without shopping around. Your premium for the same amount of coverage can vary by hundreds of dollars depending on the life insurance company you choose. Thats why its so important to comparison shop multiple insurance companies to find the right policy at the best price for you. Dont have time to shop around? In minutes, SelectQuote creates a profile of your personal life insurance needs and comparison shops nearly a dozen highly-rated companies for your best rates – at no obligation to you. To get started, click here.