Buying life insurance is one of the biggest financial decisions you will ever make.
Although there is a lot that goes into this, the right approach will go a long way in giving you peace of mind now and in the future.
Despite the fact that a large percentage of American adults have no life insurance coverage, you don’t want to head down this same path.
As tempted as you may be to purchase the first life insurance policy you find that suits your budget, it’s important to take a step back as to better understand your needs. This is the only way to be fully confident in the decision you are making.
There are many mistakes that consumers continually make when shopping for and buying life insurance. While it can be a challenge to avoid these, especially if you don’t have much knowledge and experience, it’s a must to do so.
Here are 10 common mistakes that have plagued many consumers before you:
- Waiting Too Long
Life insurance is not one of those things that you should put on the backburner for an extended period of time.
If you don’t have coverage and realize that now is the time to buy, you should pull the trigger as quickly as possible. This isn’t to say that you should rush your decision, but you definitely need to act in a timely manner.
Waiting too long is a mistake for many reasons. To start, you never know what the future holds. If you were to pass away before buying coverage, there would be no death benefit for your family.
Here’s something else to think about: The younger you are when you purchase life insurance the less you will pay.
Also, as you age, there is a greater chance of developing a health condition, such as diabetes or high blood pressure, which could greatly impact your premium.
Once you know that you need life insurance coverage it’s a good idea to start the purchase process.
- Neglecting to Set a Budget
Only you know how much money you can afford to spend on life insurance every month.
If you neglect to set a budget, it’s difficult to know exactly how much coverage you can afford.
While you never know what the future could bring in regards to your income and expenses, you can shop for a policy based on the here and now.
If you find that you can afford $150/month, for example, it’s much easier to compare your options from several different companies.
Going into the process without a budget could lead you down the wrong path, such as spending more on coverage than you would have liked. Subsequently, this can result in a lapse in coverage in the future – and that’s not something you want to deal with.
- Focusing on the Wrong Type of Insurance
Many people set their sights on one type of insurance, thus leading them to miss out on a variety of other options.
Your primary choices include: whole life insurance, term life insurance, and universal life insurance.
Whole life and term life are the two most common, so this is a good place to begin your search.
Even if you believe that term life is best for you – maybe because these policies are the cheapest – you should still learn more about whole life coverage.
The best thing you can do is receive multiple quotes for each type of coverage. This will give you the information you need to make the right choice in the end.
- Forgetting to Compare Companies and Quotes
There are consumers out there who feel that one life insurance company is the same as the next. This is far from the case, as these companies differ in many ways.
For example, some life insurance companies only sell one type of policy. Along with this, you have to take pricing into consideration, as each company has its own formula for calculating premiums.
In addition to comparing companies, you should request a quote from a minimum of three providers (five is even better).
Once you have a list of the pros and cons of each company, as well as what they are charging for the type of policy you require, everything will become more clear.
Thanks to the internet, it’s easier than ever to compare life insurance companies and quotes. It only takes a few minutes to learn more about several companies. The same holds true when requesting quotes.
- Shopping Based on Price Alone
There is no denying the fact that the cost of life insurance will have a lot to say about what you end up with. While this is important, you don’t want to shop based on price alone.
If you take this approach, you could end up doing business with a company that doesn’t have your best interests in mind (or one that is not financially stable). It could also lead you to miss out on something that is much better for you and your family.
For example, you’ll almost always find that whole life insurance is more expensive than term life. If you’re shopping based on price alone, you will overlook the fact that whole life insurance has its own set of benefits, such as coverage that remains active until the day you pass on. Yes, you pay more, but you also get more in return.
You should always focus on the cost of a policy and how it fits into your budget. Just make sure that you also consider other details.
- Rushing to Name a Beneficiary
There is so much to think about when buying life insurance that you may overlook the importance of naming the right beneficiary. It’s easy to believe that you can change this in the future – and you definitely can – but many people forget to do so.
If you want to put your mind at ease, take a step back and think long and hard about who makes the most sense as your beneficiary. This is the person who will receive the death benefit when you pass on.
For some, this is a simple decision: they name their spouse and move on. Others, such as those who are single, may have to spend more time figuring this out.
Note: Review your beneficiary designation often to ensure that it still makes sense for you and your family. For example, if your spouse passes on before you, you will need to remove this person as your beneficiary and name someone else, such as a child.
You should never rush to name a beneficiary. Give yourself as much time as you need (within reason) to make the right decision.
- Buying Something You Don’t Understand
When you know you need life insurance but have yet to make a purchase, you may feel compelled to move forward with the first policy that makes even a little bit of sense to you.
Don’t take this approach, as you could find out at some point in the future that you don’t have exactly what you need.
You should never purchase a life insurance policy unless you fully understand the finer details.
With whole life, for example, you can focus on the premium, cash growth, and payment options.
Don’t get caught thinking that any type of life insurance coverage will suit you well. It’s true that something is better than nothing, but if you’re going to make a purchase you might as well get exactly what you want.
- Too Small of a Death Benefit
There is a lot to think about when buying life insurance, but the death benefit is one of the most important details. Here’s why: This is the amount of money your beneficiary will receive when you pass on. This is what life insurance is all about.
The bigger the death benefit the more your life insurance policy will cost. A policy with a $1 million death benefit will cost more than one with a $500,000 death benefit.
There is no right or wrong way to calculate how much of a death benefit you should choose.
Some people base this on a multiple of their income, such as 10x. So, if you earn $100,000/year, you should purchase a life insurance policy with a death benefit of $1 million.
Here are some details to review as you attempt to make a decision on how much your death benefit should be: your age, your income, if you have any children, marital status, ages of your spouse and children, your debt, and any future expenses that could come into play (such as college tuition).
This is why it’s so important to shop around for the right life insurance company. One company may not be able to get you the death benefit you need at a price you can afford, but that doesn’t mean others won’t be able to help.
- Thinking Your Group Life Insurance is All You Need
Do you have life insurance coverage through your employer? Are you assuming that this is more than enough?
While this is one of the most valuable work benefits you can access, especially if you don’t have to pay for the coverage, here’s something to remember: You still need to purchase an individual life insurance policy.
There are many reasons for this, including the fact that your group policy may expire if the company no longer employs you. This could be the result of leaving for another job, termination for any reason, or retirement. You don’t always have the option to continue the coverage on your own.
The more life insurance coverage you have the better. Just make sure you are not putting all your eggs in one basket.
If you’re relying solely on group life insurance and something happens, such as you lose your job, you could find yourself without coverage. Worse yet, if this happens later in life, you may realize that purchasing an individual policy is now too expensive.
If you have access to group life insurance through your employer, make sure you think long and hard about taking advantage. When you add this to an individual policy, you’ll find it easier to reach your financial goals.
- Buying Only for Yourself
There are people who only have to think about themselves when buying a life insurance policy. An example of this would be a younger individual who is single and has no children.
There are also those who need to think about other people, such as a spouse or child.
If you are married, don’t assume that buying a life insurance policy for yourself is good enough. You may also want to discuss the possibility of your spouse purchasing coverage at the same time.
Here’s a common myth: Only the working spouse needs a life insurance policy because he or she is the one making money for the family.
This may sound right at first, but you need to consider the contributions of the non-working spouse. For instance, this person may be in charge of raising your child, which is no easy task.
Also, if your spouse passes on, you will be faced with a variety of final expenses, such as funeral and burial costs. A life insurance policy can help pay for these expenses, so that you don’t have to use cash or a credit card to do so.
If you are in the process of shopping for life insurance for yourself, see if it makes sense to do the same for your spouse. There is a good chance that you will soon realize how important it is for the both of you to have the right coverage in place.
With more than 800 life insurance companies selling policies in the United States, consumers have more options than ever before. It doesn’t matter where you live, how much you can afford to spend, or the goals you have set for the future, there is a company and policy out there for you.
By avoiding the mistakes above, it’s much easier to make an informed and confident buying decision that will benefit you, your family, and your finances now and in the future.