People purchase life insurance every day; well some people. Others do not for various reasons. Some may purchase life insurance very fast with little consideration. Although life insurance is simple in nature, it can be complex. It requires some patience to determine the correct policy. It also requires transparency with your life insurance agent.
I have heard many stories from all walks of the country. Some things that have come up over the course of my career have sparked me to want to discuss in this article. I wanted to point out some of the pitfalls to avoid and common mistakes you may make throughout the process.
My hope is that you knowing these common mistakes, makes it easier for you purchase life insurance in the future. Let’s look at the 6 most common mistakes individuals make when purchasing life insurance.
Mistake #1: I Will Purchase Life Insurance Next Year
So, you have called your Life Insurance Agent and have asked to go over rates. You chat for a few minutes and the agent explains a few different options to you. You hear the price and for whatever the reason is, it does not seem enjoyable to pay that life insurance premium. You have to decide if you’re serious about obtaining life insurance. You also need to keep in mind the primary reason it’s on your mind in the first place.
So, you have heard the price, you told your agent you will get back to him or her, but do you? Possibly, but rarely no. Often, once the life insurance coverage loses its top of mind status, it is out of your mind. The sad and scary part about this is that it usually takes a life event for you to remember why you originally thought about the life insurance in the first place. Now, you are enduring and suffering some type of financial burden or watching someone else go through it. Not always is it a financial burden that triggers you to think about life insurance again. Sometimes you see something happen to a close friend or distant family member.
Nonetheless, one of the biggest mistakes I often see while shopping for life insurance is waiting too long. As you wait, the price rises. Medical conditions may develop, causing you to become uninsurable. To avoid these mistakes, make sure keep life insurance top of mind. Why were looking for the life insurance in the first place? Are you willing to wait and pay more?
Mistake #2: I Want The Cheapest Life Insurance Policy!
I see this every day and it is a very common mistake. Shopping prices for life insurance CAN be a mistake for several reasons. You should be considering things such as company history, financial strength and claim paying history. Many companies even offer living benefits now which is a conversation for another time.
Long story short, some policies allow you to take advantage of life insurance before death. These policies allow you to use a certain percentage of the face value prior to death for certain medical cost. These are known as “triggers”. They are limited but can still be a huge added benefit. How much could this help your family if something happened? Yes, the price can be a huge deal in some situations but will 5 – 20 dollars per month make or break you? If not, you should always be shopping value for a life insurance policy. Don’t just always search for the cheapest option.
Ask your agent to explain the difference in policies and carriers. Shopping price will often solve the protection portion for a desired amount of time. Let’s assume this is costing you $100.00 per month. What if not looking at the price of $115.00 per month could benefit you in many ways? Looking at different avenues that are slightly out of your budget can be beneficial in later years. Speak with an experienced agent to help you navigate these options.
Mistake #3: Waiting Until Your Current Life Insurance Policy Expires
Most life insurance policies allow for 2 things.
Item number 1 is known as converting the policy. This is the opportunity to move some term coverage over to permanent insurance. This is a huge benefit and should be executed more frequently. This also allows you to move some of that coverage to permanent insurance obtained at a younger age over before you hit at new rates at an older age. This can save you a lot of money and headache in the future by exercising this right.
Item number 2 is the option to extend or lengthen the term of your policy. Most policies will allow this in the later years of the policy but also early in the policy during specified intervals. Exercising these options can be very beneficial.
Waiting until the end usually does not benefit you. Especially when assuming you still need the coverage. It is going to be much more expense doing it this way; the early bird gets the worm. The sooner you do this, the more you benefit yourself. If you have a 30-year term policy that expires when you turn age 60, do not wait until age 60 to do so. Consider taking care of this as early as possible. Also, make the policy run to an age that you know covers you and your families need for the long run.
Mistake #4: Assuming You can’t Get Life Insurance Due To Medical Issues
This is a huge misconception in the life insurance industry and I am here to tell you, it is incorrect. Agents are helping individuals daily that would be deemed high risk. High-risk life insurance does exist; many carriers offer policies for medical conditions pertaining directly to your condition and will take on the risk at a specified rating (depending on other factors).
Even in situations where you think you may be ineligible. Reach out to an Independent Life insurance agent with several carriers he or she can use for options. Often it may take extra effort from yourself and your agent to make this happen. It also takes an agent who is knowledgeable handling various medical conditions. One that knows how certain carriers handle them and how to rate them for the policy.
Do not hesitate to look at life insurance because you have heard you cannot be insured. It is a widespread myth; it is very possible to get a high risk life insurance policy when having a medical history and at rates probably not as high as you would think.
Mistake #5: I Should Bundle My Life Insurance With Other Insurances
This is also another very common mistake made in the life insurance industry. People often think they should always bundle all insurances together. I have my car and home through State Farm, so I need my life insurance through State Farm as well. State Farm is a great company and I am not saying having life insurance with State Farm is a bad idea. I am saying by not exploring the options is a mistake.
You may be surprised how much you can save looking around. This does not mean you have to call every insurance carrier. It does mean that an Independent Life Insurance Agent may very well, be your best option. They represent you. They do not work for any company in particular. This can help drive your price down. This can also be a huge benefit if you have any special circumstances to consider.
All these mistakes in a way tie together. Exploring options could leave a lasting positive effect on you and your family.. You should look at options carefully. Explain your fears and needs to your agent. Ask questions. The only dumb question is the question that is never asked.
Mistake #6: Only Listing Your Spouse As A Beneficiary
This is an easy fix. But the best fix for it, do it right the first time. Having one beneficiary and having it always be a spouse can be a huge mistake. How often does the same tragic event happen to both spouses? Maybe not a high percentage all the time but it happens more than you would think. So now where is the money going to go? Your estate. What’s the problem with this?
Well, first you lost a big perk of the life insurance. The tax benefits. Once death proceeds are payable to an estate, the same protections do not exist for the proceeds. It also can hurt your kids or other people you could have made beneficiaries.
Always have backup plans for the life insurance policy. I often tell my clients to have several contingent beneficiaries. You never know what may happen in a lifetime. If you must pay the premiums for the life insurance policy, take advantage of all perks that come with that.
How To Look For Life Insurance The Right Way
Many more mistakes are often made with life insurance. This is either at time of purchase or during the time the life insurance policy is in force. Some mistakes are more frequent than others. All these mistakes can be avoided.
The best advice I can give you, take your time and find an agent who represents you. To an agent, especially an Independent Life Insurance Agent, credibility is everything.
We do not want to be known as allowing you to make mistakes with your decision. We want what helps you in the long run and what we know you will be happy with. Solve the full problem. Be transparent with your agent. Plan accordingly and you can avoid these pitfalls and common mistakes.
Spectrum Insurance Group is made up of professional life insurance agents who are licensed in all 50 states and the District of Columbia. Spectrum Insurance Group has helped 1000’s of people purchase life insurance online & over the phone.
All content on this site has been written by life insurance experts & licensed life insurance agents.