Buying life insurance is one of the most important purchases you will make. If you have a family, life insurance is a must-have. In a recent survey by Bankrate, it was discovered that families with children under the age of 18 are especially vulnerable. More than 1 in 3 of those parents (37%) have no life insurance coverage at all, while a third of those who do have coverage have no more than $100,000. Let’s discuss common life insurance mistakes to avoid.
These numbers are concerning. What’s preventing people from purchasing such an essential financial product? Is it cost? The unknown buying process?
To help provide some clarity, let’s go over some of the most common life insurance mistakes to avoid before, during, and after buying a life insurance policy. Maybe these will answer some questions.
Mistake # 1 – Assuming Life Insurance is Too-Expensive
First of all, those with no life insurance think it’s three times more expensive than it actually is. Whether you are considered Preferred Plus or Standard by the life insurance company, chances are you are paying much less for a term life insurance policy than your cable bill. Instead of just assuming it’s too expensive, try it out for yourself. This is the most common of insurance mistakes to avoid.
» Compare for yourself: Term life insurance quotes
Mistake # 2 – Relying on Only Your Group Insurance Policy
Group life insurance is a great benefit to take advantage of through your employer, but you can only collect on your group life insurance policy if it’s in force and you’re employed with the company when you die. If you rely on only your company’s life insurance plan, you may be left out in the dark when the unexpected does happens, like losing a job or getting ill.
Mistake # 3 – Procrastinating
The younger you are, the cheaper your life insurance premiums. As you age, the tendency to develop medical issues and be more susceptible to accidents increases, thus the raising of premiums by the insurance companies. If you’re 50 years old, term life insurance can still be affordable, but it definitely won’t be as cheap as if you purchased at age 30 instead.
Reviewing and updating your policy is imperative to ensure it’s in place to carry out your financial wishes if you’re no longer around.
Mistake # 4 – Cheating on Your Application
It can be tempting to omit certain facts about your health, lifestyle, or family history to get lower premiums, but don’t do it. The insurance companies have access to Medical Information Bureau (MIB) reports.
In these records from your health providers it is very likely the missing information from your life insurance application would turn up. When the insurance company discovers the information, they are just going to raise your premiums anyway. In the extreme, they may decide to decline the application altogether if it’s revealed that your application has many missing disclosures.
If you do get away with lying on your application and it’s approved, keep in mind that the insurance company also investigates death benefit claims. If it is discovered that you lied to get your policy, the insurance company can reduce or even completely deny any payout to your beneficiaries. The best thing to do when applying for life insurance is to be honest and assume that everything you put on your application will be investigated.
Mistake # 5 – Purchasing an Inadequate Amount of Coverage
A small term policy with $100,000 in coverage may seem like a lot of money at first glance, but when you factor in mortgages, child-raising costs, and college tuition it suddenly isn’t very much at all. If you’re unsure how much life insurance coverage you need to protect your family, use our needs analysis tool to help you calculate the numbers. It’s easy to use and will help reassure you that you’re buying the right amount of life insurance.
» Calculate: Life insurance needs calculator
Mistake # 6 – Improperly Designating Beneficiaries
You may think that assigning someone to get the life insurance money after you die is a no-brainer, but choosing beneficiaries can be a little trickier than that. The whole reason to own life insurance is so your income is replaced for the benefit of your beneficiaries. If it’s not set up properly, then it can become a mess. Check out our blog 10 Things Not to Do When Choosing Your Life Insurance Policy Beneficiaries for more helpful details.
Mistake # 7 – Not Reviewing and Updating Your Policy
Life insurance is not a set-it-and-forget-it financial product. Ideally, you want to review your policy every couple years and every time a significant event happens in your life, such as a marriage, divorce, birth, job change, home purchase, etc. Reviewing and updating your policy is imperative to ensure it’s in place to carry out your financial wishes if you’re no longer around.
Mistake # 8 – Not Shopping Around Before Buying Life Insurance
Life insurance companies all underwrite a bit differently. When one company may offer you a term policy for $25 per month, another company may offer that same term length and coverage for only $18 per month. At Quotacy we do all that shopping around for you behind the scenes. We’ll help you get the coverage you need at an affordable price. Start by getting a free, anonymous (no contact information required) term life insurance quote today to remember the life insurance mistakes to avoid.
» Learn more: Your Life Insurance Beneficiary Review Guide
Photo credit to: GWPorter
About the writer
Writer, Editor, and Co-host of Quotacy's Q&A Fridays
Natasha is the content manager and editor for Quotacy. She has been in the life insurance industry since 2010 and has been making life insurance easier to understand with her writing since 2014. When not at work, she's probably studying and working toward her Chartered Life Underwriter (CLU) designation while throwing a tennis ball for her pitbull mix, Emmett, or curled up on her couch watching Netflix. If it’s football season, the Packers game will be on. Connect with her on LinkedIn.