Life insurance is your shield against unexpected (or eventual) hardship. The proceeds, type and timing of the insurance need to be tailored to individual and family needs. Having too much insurance could cost thousands in the long term. And the implications of having none or not enough are worrisome. Here are the five biggest mistakes families make with life insurance policies and how you can avoid them.
Mistake #1: Underestimating Your Cost of Living
Unfortunately, many individuals are forced to go through their spouse’s life insurance benefits within a matter of months, leaving very little sustainability. And having children can make this even more challenging. According to the USDA, the average cost to raise a child through to the age of 17 is just over $233,000, not including college.1
Get an unbiased, no-nonsense analysis of your current insurance needs to protect you and your family against financial hardship. And, check your policy and see if you and your loved ones could maintain your current or future cost of living. Knowing what your family will require will allow you to update your insurance to meet those goals.
Mistake #2: Misunderstanding Your Term Life Insurance Coverage
If you carry a low-premium term insurance policy, then you’re paying lower premiums for higher coverage. However, your premium and payout amounts will fluctuate with age. In this way, relying on term insurance is equivalent to renting a home. You gain no equity in your account, and the longer you live, the more the insurance companies profit.
Consider buying insurance policies where your premiums build equity and provide an insurance safety net. There are many life insurance products on the market and making the right choice can be challenging. Make sure you get advice from an insurance expert and tailor your portfolio accordingly.
Mistake #3: Overpaying For a Policy
A single person with no dependents needs only enough insurance to cover burial costs. Even though life insurance is cheaper for the young, buying big coverage earlier in life could be costly and a waste of money.
Adjust your life insurance needs to your life changes to eliminate monetary concerns for your loved ones upon the event of your passing. This way you don’t overpay for a policy that you won’t need.
Mistake #4: Purchasing Too Many Policies
Banks, airlines, car rentals and even credit card companies offer life insurance policies. These policies are incredibly profitable to the provider but are rarely collected on.
Instead, purchase life insurance from an insurance provider. And, if your provider covers all of your concerns, then avoid purchasing insurance from unnecessary sources.
Mistake #5: Neglecting to Reassess Your Policy
You don’t want to wait till a tragic event occurs to check your insurance policy. Many life changes elicit a review of your current policy. You should always have at least two backup beneficiaries. Are they current? What about making the children backup recipients?
Generally, it’s a good idea to review and update your insurance policy every three years. This is especially important if you rely on term insurance with time limits, as gaps in coverage can affect the term of your policy.
Understanding common life insurance mistakes can help you determine your current and future needs, and save money in the long run. Make sure to always consult your insurance provider before making any changes to your life insurance policy.
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Advisory services offered through CreativeOne Wealth, LLC a Registered Investment Adviser. CreativeOne Wealth, LLC and Oliver Asset Management are unaffiliated entities. Licensed Insurance Professional. Respond and learn how financial products, including life insurance and annuities can be used in various planning strategies for retirement. The information contained herein is based on our understanding of current tax law. The tax and legislative information may be subject to change and different interpretations. We recommend that you seek professional tax advice for applicability to your personal situation.
