Understanding Life: 5 mistakes to avoid when buying life insurance
Buying term life insurance is nothing to be scared of – we promise. That said, there are a few things that could cost you if you’re not careful.
Steer clear of these common mistakes when you’re shopping for a term life insurance policy, so you can lock in the most affordable, dependable coverage.
Mistake 1: Leaving out details during the application process.
Whether you have diabetes or like to spend your vacations scuba-diving, leaving out information to try to get a better rate can come back to haunt you. If your policy is underwritten, your carrier will ask your permission to review public databases for your health history and driving record, so these details are likely to come out anyway. If the carrier discovers you weren’t truthful during the application process, they may not offer you coverage; if they discover it later, your family may not receive your life insurance payout (ouch). Just take the case of the Colorado widow who was denied a $1 million life insurance payoutbecause her husband allegedly didn’t disclose that he had sleep apnea.
While it’s easier than ever to get covered quickly, you should still take the time to answer each application question completely and honestly. Regardless of your current health or lifestyle, there’s a policy out there for nearly everyone. The more your agent knows about you, the better able they are to help you find the right fit.
Mistake 2: Not planning ahead far enough.
Buying life insurance while you’re young is a smart move: The longer you wait, the more expensive it gets. If you’re locking in coverage in your 20s or 30s, though, make sure to look at the bigger picture. The premium on a 15-year policy may be a breeze to pay now, but if you’re 30, that means you’ll likely be in the market for a more expensive policy when you’re 45. On average, premiums rise between 8 and 10 percent a year.
If you think you’ll still have a mortgage or kids in the house when your policy expires, consider going for a longer term length now. Once you lock in your rate with term life insurance, it will never go up.
Mistake 3: Not getting the most bang for your buck.
Know how the Costco-sized bottle of ketchup winds up costing less per serving than the small one? Well, just like condiments, it can pay to buy in bulk with life insurance.
Carriers provide price breaks on life insurance at certain levels. While you need to qualify for the coverage level, it could cost nearly the same to buy a $250,000 policy as a $200,000 one. If you’re thinking of going for a lower coverage amount, make sure you’re not leaving big dollars on the table just to shave pennies off your premium. With the cost of raising a kid now hovering around $234,000, you need to buy enough life insurance to keep your family covered.
Mistake 4: Not naming a backup beneficiary.
Your beneficiary is the person who will receive your life insurance payout when you die, whether that’s your husband, your daughter, or even your business partner. Whoever you pick, make sure there’s a backup waiting in the wings. While you should ideally review your beneficiaries once a yearto make sure everything’s up to date, it’s easy to let it slip through the cracks. If your beneficiary passes away before you do and you don’t have a backup, that money will go to your estate. That means the money is subject to taxes, unlike a life insurance payout that goes directly to a person, which is 100 percent tax-free. If your estate receives the money, your loved ones could also be stuck waiting months during the probate process before they can access it.
Mistake 5: Counting on group life insurance – and nothing else.
If you’re lucky enough to work for one of the 48 percent of employers still offering group coverage, you might think you’re free and clear. But while these policies are a nice perk, relying on them as your only source of coverage can cause trouble later. Most group policies aren’t portable, which means you won’t be covered if you switch jobs. They also tend to be too small for most families’ needs. If you put off purchasing an individual policy now because you have group coverage, you’ll have to pay more later – if you qualify for coverage at all. Better to buy now to make sure you’re covered, no matter what life (and your career) has in store.
Still have questions about buying term life insurance? That’s what we’re here for. Start your quote online or talk to one of our agents– we’ll tell you what you need to know to shop with confidence.
At eFinancial, our goal is to make life insurance simple, affordable, and understandable for everyday families. This content is intended for educational purposes only. Each post is carefully fact-checked, reviewed and updated regularly to ensure the information is as relevant as possible.