Avoid These Life Insurance Missteps
Shop wisely when you look for coverage.
Are you about to buy life insurance? Shop carefully. Make your choice with insight from an insurance professional, as it may help you avoid some of these all-too-common missteps.
Buying the first policy you see. Anyone interested in life insurance should take the time to compare a few plans—not only rates, but also coverage terms. Supply each insurer you are considering with the exact same information about yourself.1
Buying only on price. Inexpensive life insurance is not necessarily great life insurance. If your household budget prompts you to shop for a bargain, be careful— you could end up buying less coverage than your household really needs.1
Buying a term policy when a permanent one might be better (and vice versa). A term policy (which essentially offers life insurance coverage for 5-30 years) may make sense if you just want to address basic insurance needs. If you see life insurance as a potential estate planning tool or a vehicle for building wealth, a permanent life policy might suit those ambitions.1
Failing to inform heirs that you have a policy. Some people buy life insurance policies and never tell their beneficiaries about them. If a policy is small and was sold many years ago to an association or credit union member (i.e., burial insurance), it may be forgotten with time.2
Did you know that more than $7 billion in life insurance death benefits have yet to be claimed? That figure may not shrink much in the future, because insurers have many things to do other than search for “lost” policies on behalf of beneficiaries. To avoid such a predicament, be sure to give your beneficiaries a copy of your policy.2
Failing to name a beneficiary at all. Designating a beneficiary accomplishes two things: it tells the insurer where you want the death benefit to go, and it directs that death benefit away from your taxable estate after your passing.3
Waiting too long to buy coverage. Later in life, you may have a serious medical condition or illness. You can certainly buy life insurance with a pre-existing health condition, but the policy premiums may be large. The insurer might also cap the policy amount at a level you find unsatisfactory. If you purchase a guaranteed acceptance policy, keep in mind that it will probably take 2-3 years before that policy is in full force. Should you pass away in the interim, your beneficiaries will probably not collect the policy’s death benefit; instead, they may receive the equivalent of the premiums you paid plus interest.3
Not realizing that permanent life insurance policies expire. Permanent life insurance products come with maturity dates, and for years, 85 was a common maturity date—but now, living to be 90 or 100 is not so extraordinary as it once was.3 If you live long enough, you could outlive your policy. The upside of doing so is that you will receive a payout from the insurer, which may correspond to the policy’s cash value at the maturity date. The downside of outliving your policy? If you want further insurance coverage, it may not be obtainable—or it could be staggeringly expensive.3
Take your time when you look for life insurance, and compare your options. The more insight you can draw on, the more informed the choice you may make.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate; however, we make no representation as to its completeness or accuracy. Please note: investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting, or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax, or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Citations.
1. smartasset.com/life-insurance/5-mistakes-to-avoid-when-buying-life-insurance [4/11/18]
2. kiplinger.com/article/saving/T063-C032-S014-could-unclaimed-money-be-yours.html [10/13/17]
3. nasdaq.com/article/4-errors-to-avoid-with-your-lifeinsurance-cm868133 [10/30/17]
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