Life insurance is not the most pleasant thing to shop for. Nobody likes to be reminded of the eventuality of their own demise, but we do it motivated by the knowledge that we need to make sure that the ones we love the most are protected after we die. We want to ensure that our spouses can enjoy a comfortable retirement or that those we’re survived by aren’t crippled by the necessity of funeral costs. However, as noble as we may be in wanting to provide for our loved ones, many of us make the mistake of blindly selecting a policy and paying into it, little knowing how ill-suited it may be for our family’s needs after we’re gone. Not all life insurance policies are created equal and nor are the circumstances of the people who need them.
Avoid these common life insurance mistakes when shopping around and you’ll be well on your way to peace of mind:
Buying cheap
As with anything, you get what you pay for. But if you cut corners on your life insurance policy by going for the cheapest option, the ones who’ll foot the bill in the long run will be your nearest and dearest. Typically lower premiums result in reduced coverage, and insurance companies tend to give a lot more coverage for a little more money to incentivize customers to opt for better, more comprehensive policies.
Underestimating your needs
When determining how much life insurance you need there are several key factors at play and a failure to understand them can grossly distort your perception of your needs. These include your age, general health, your life expectancy, your current income, your unpaid debts and any assets you may have. If you’ve spent years building a sizable nest egg and you have little-to-no debt, you may not need as much coverage. If, however, you have young children and a spouse who doesn’t work, you’ll need enough insurance to ensure that they’re well provided for in the long-term.
If your spouse doesn’t work, don’t make the mistake of underestimating them in your policy. While you may not have to replace their income, you may need to cover expenses such as childcare or housekeeping expenses.
Buying the wrong policy
Broadly speaking, life insurance falls into two categories, term and permanent and it’s important to know which is best for you. Term policies pay out an established ‘death benefit’, and remain in place over a set period of time from 5-30 years.
You can also buy lifetime policies that define whole life insurance and these accumulate a cash value that can be drawn against to pay off credit card debt or to pay for unforeseen expenses such as car trouble or home repairs.
Leaving it too late
While you’re never too old to start paying into a life insurance policy, the earlier you start paying into a policy, the more affordable and less noticeable your monthly premium will be. If you’re in good health now then it’s the perfect time to start up a policy as your premiums will be significantly higher if you become sick a few years down the line.
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