Top 10 Mistakes in Purchasing Life Insurance

Once you’ve decided to purchase a life insurance policy, it’s easy to get overwhelmed with the many factors and decisions involved. You do as much research as you can to find answers that suit your needs, but there are many people out there who still wonder if they made the right choice. As with any major investment, it’s important to know all the facts about life insurance so you can make the most informed decision possible. As you do so, consider this list of the top ten most common mistakes made and learn how you can avoid.

1. Didn’t Buy Enough Coverage
It’s recommended by some experts that you purchase a policy which has a death benefit equal to 10 times your annual salary, however, everyone’s situation is different. The best thing that you can do is calculate your current expenses and estimate your futures ones. This includes rising costs of childcare, household maintenance, college expenses, mortgage payments, medical bills, and of course, you should always calculate your funeral expenses. There are numerous tools and resources to help you calculate these and other costs, but it’s important to speak to a qualified agent to get an exact idea of what you need versus what you can afford.

2. Going Cheap and Skimping on Value

There are a dime a dozen of companies who promise the lowest rates around and it lures many of us in, but all too often, people aren’t reading the fine print of the policies. Before selecting the lowest price, realize that you may not qualify. In these cases, if it sounds to good to be true, it probably is. The lowest rates go to the young and healthy because the companies believe they will still make money off of these individuals. If you’re over a certain age, smoke or are slightly overweight – your rates will most certainly be higher. Also be sure that you study the financial strength of such companies and their policies. Learn the length of guaranteed periods, convertibility rights, available riders, etc. Most likely, if you’re willing to pay just a little bit extra, you’ll have a policy with better features, more flexibility and from a company you can trust.

3. Opting For a Short Term Period

The shorter periods may provide lower rates, but the more often you have to renew your policy, the more your rates increase. In addition to higher costs, you also have the added expense of worrying when the policy ends. Every time you renew your policy, you run the risk of letting it lapse and losing everything. Therefore calculate your financial goals and figure out what you can realistically afford. But keep in mind that if you’re purchasing a term life policy, the longer you can go, the better.

4. Buying Life Insurance Is Not a One-Time Activity

It’s important to re-evaluate your life insurance needs once every year or so because your circumstances are always changing (marriage, birth, jobs, etc) and the plan you originally purchased could now be insignificant. You may also decide to convert your term life policy to a permanent policy if possible.

5. Assuming You Have to Pay A Lot More If You Smoke

While it’s a general rule that smoking (or any tobacco use) causes increased monthly premiums, you may be surprised to find that you can actually save a little money by researching the right companies. Some companies have much harsher penalties for tobacco users while others treat you more favorably by offering lower rates than their competitors.

6. Canceling a Policy Prematurely

With today’s economy, companies are offering new policies with more attractive rates. It’s possible that you may want to switch life insurance providers, but make sure you’re new policy is in place before canceling your existing life insurance.

7. Delaying Buying Insurance

It can be difficult to think about life insurance when you’re in young and healthy. Few people enjoy thinking about their own mortality and it’s affects on others. So they go on living their life, choosing to delay the subsequent cost and headache of life insurance. But the fact is that the longer you stay without insurance, the more vulnerable you are. As you age, your premiums and health risk causing you to be a greater liability for insurers. By waiting you may find yourself with little to no coverage at all.

8. Purchasing Life Insurance Without a Medical Exam

This is fine for those of you who suffer from poor health and are willing to pay a little extra to receive some coverage. But, if you’re healthy, you can potentially save quite a bit of money in the long run by opting for a simple medical exam. An accurate health profile will place you in the correct category and your insurance company can then charge you rates according to your specific health situation (which may be much lower).

9. Employer Coverage Only

Employer-provided life insurance simply doesn’t offer enough protection. While it’s certainly a perk, it is rarely based on your financial and personal goals. It is therefore important to have a personal life insurance policy that is more closely tailored to your needs in addition to your workplace coverage. Also, keep in mind that should you lose or leave your job, you will lose that coverage and be very vulnerable.

10. Buying Insurance for the Breadwinner Only

Some people think that they may not need life insurance for family members that don’t work and therefore only purchase policies for the breadwinners. On the contrary, it’s important to consider that the person maintaining the home or looking after the family has quite a bit of financial value, even if they are not currently earning an income. For example, in their absence consider the costs of childcare or home maintenance. Time that will have to be spent away from work. All of this will add up over the years and having the right policy can help a great deal.