For many families, the consequences of a sole breadwinner’s death can be devastating. Life insurance is a useful tool that provides financial security to a policy holder’s loved ones in the event of a tragedy. Whether it is paying the mortgage or paying for children’s college education, a life insurance plan can ensure that they remain financially stable and maintain their current standard of living. And when it is about securing your loved ones’ financial interests, there is little room for blunders.
It is vital to make an informed decision by avoiding any costly mistakes, big or small. So, how can you go about making a foolproof purchase and avoid some common pitfalls to get the coverage your dependents may need in your absence? Let’s take a look.
Not Buying at the Right Time
It is common for young people to delay buying life insurance or not consider it due to competing financial priorities or lack of awareness about having life insurance as part of a solid financial plan. Your age and overall health are two of the most significant factors that determine the cost of premiums.
While it may never be too late to purchase a life insurance policy, buying it at an early age will work in your favor if you want to secure a policy at the lowest possible rates. Premiums continue to increase as you age and your health deteriorates. A serious health condition may also make you ineligible to receive any coverage.
Choosing the Wrong Type of Policy
Before taking the plunge, it is in your best interests to learn and research the two most common types of insurance policies and determine which fits your financial goals best. And The Annuity Expert can help you gain a comprehensive understanding of term life insurance and whole life insurance and their features. Remember, picking the wrong one may leave your family vulnerable to financial hardships during difficult times.
Simply put, a term life policy covers the policyholder for a set period, typically 10-40 years after which they expire. They are cheaper as the likelihood of their payout is low. In contrast, a whole life insurance policy provides coverage for a lifetime and can be used as an investment tool, as it builds cash value over time.
Your specific situation and what financial goals you want to achieve with the policy will dictate the type of insurance policy you should choose.
Getting Insufficient Coverage
Accurately estimating the amount of a death benefit you need is vital to ensure that your dependents can fulfill their financial needs when there is no stable income stream. Project your expenses and not pick a number out of thin air to avoid being underinsured. Take into account various factors to calculate how much life insurance you would need to cover all your current and future needs. These include lost income, mortgage, and long-term goals like children’s college tuition, marriage, etc.
This need-based approach is even more essential if you are the sole breadwinner of the family and your spouse is a stay-at-home parent. You will need enough coverage to provide for their financial needs over the long term.
Focusing Solely on Price
Sure, the cost of life insurance, or premium, is a significant aspect to consider when shopping around for a policy. Often, that is enough to scare many people away or temp them to reduce their coverage amount to lock in a lower premium. But life insurance is one of the last things about which you would want to be frugal. After all, it is your family’s financial security and standard of living that is at stake.
Buying a term policy may be cheaper than permanent insurance. But it is only for a set period and could backfire by not giving your family the coverage when they need it most. Accordingly, it may lead to your beneficiaries enduring financial hardship and not living comfortably for years after your demise.
Non Disclosure of Information
Hiding certain information or not accurately stating the truth about your health, family’s medical history, risky lifestyle choices, or occupation may lower your insurance cost. But it is likely to put your family’s financial security at risk.
Providing misleading information may result in the insurance company denying coverage to your family if your death is traced back to a health condition you chose not to disclose. That may put them in a severe financial crisis, which renders it crucial to keep your loved one’s best interests in mind at all times and be completely honest with your application.
Believing You Are Ineligible Due To a Health Condition
A pre-existing medical condition may mean you have lesser coverage options and higher premiums, but it does not disqualify you from buying life insurance. Life insurance companies have different policies as to how they view particular health issues and the rates they give to these individuals.
An insurance agent familiar with the underwriting guidelines of various companies can help you find the best deal for an insurance policy based upon your given condition.
Relying Only on Group Life Insurance
Even though you may be taking advantage of free coverage provided by your employer as part of the benefits package, it is a viable idea to purchase an individual life insurance policy to enhance your coverage.
Group life insurance may not provide sufficient life insurance protection for your beneficiaries and cover all their needs if the unexpected happens. Moreover, group coverage is not portable- which means it terminates when you leave the company.
Not Comparing Insurance Rates
Do not limit your search to one company when seeking to buy a life insurance policy. Pricing varies widely, which is why you must shop around to ensure that you get the best rate. Committing to a policy without getting quotes from a few different companies may end up costing you money unnecessarily. An independent insurance agent may be able to get you the best rates by comparing a variety of life insurance products from several different companies.
Life insurance is a vital part of a comprehensive long-term financial plan. It serves as a crucial safety net to protect your loved ones from financial hardships in your absence. By knowing the finer details of each policy and some common missteps to avoid, you can get adequate protection when needed by committing to a policy that caters to your unique situation and secures your family’s financial future.