If you're planning to buy a car or even a TV, you'll likely spend hours researching your options and comparing prices to get the best deal. Do you spend a lot of time buying life insurance? After all, it is not as exciting as getting the keys to a new car. But possibly buying life insurance is more important and you shouldn't rush.
"A life insurance policy is a vital part of your financial plan and you will probably have it for decades," says Irene Ardeli, founder and president of Dynama Insurance. "Take the time to research and understand your options." Otherwise, rushing to finish the process and distinguish it from your tasks can cost you in the long run.
This is just one of the many mistakes you can make when buying life insurance. Here are 10 other common mistakes to avoid.
Assuming life insurance is expensive
You are not alone if you put off buying life insurance because you thought it would be too expensive. This is one of the most common reasons people don't get coverage, according to the 2020 Insurance Scale Study conducted by LIMRA and Life Happens, industry-funded groups.
More than half of those surveyed estimated that the 30-year-old would have to pay $ 500 a year or more for a lifetime policy with $ 250,000 death compensation. However, the average cost of such a policy is about $ 160 a year, or about $ 13 a month, according to the study. "For millennials to buy a life insurance policy, this policy can be the same price as their Netflix subscription," says Faisa Stafford, CEO and president of Life Happens.
Heavy reliance on employer-provided coverage
If you have a group life insurance policy through work, don't assume you have adequate coverage. For starters, the death benefit, the amount the policy will pay to beneficiaries, may not be enough to cover the financial needs of your loved ones if something happens to you.
Also, group life insurance policies are usually not transferable. This means that you cannot keep your coverage if you leave your job. With the large number of layoffs related to the coronavirus epidemic, Stafford says, people who have life insurance through work have lost their coverage. That is why it is important to have your own policy in place or in addition to the group plan in action.
Don't look for the best rate and policy
Because prices vary widely, you shouldn't limit your search for a life insurance policy to just one company.
"For example, an insurance product for a single company can be more than twice the product of the competition," says Ardleigh. Get quotes from at least three companies of different coverage levels.
Better yet, let an independent insurance broker compare purchases for you. Since brokers work with many companies rather than just one, they can compare a variety of life insurance products to find the best rate.
Maintain insurance company information
When you apply for life insurance, you will be asked a variety of questions about your health, your family's medical history, your driving record, your profession, and even your hobbies. This is part of a process called underwriting that insurance companies use to decide whether to cover you and what price to charge you.
It is important to answer all questions honestly. Insurance companies will verify the information you provide asking your permission to obtain your medical records from your doctor and prescription drug history, verify your vehicle report, use other outside sources, and may require you to submit to a medical examination.
Your insurance company may reject coverage if it detects that you have hidden information in an application. If you manage to hide something (it can be difficult to do), Ardleigh says the insurance company may not pay a claim if your death is related to information that you did not disclose.
Not preparing for your medical exam
The insurance company may require you to undergo a quick life insurance health check as part of its application process. Your height, weight, pulse, and blood pressure will be recorded. You will also need to provide a urine sample and draw blood.
Be sure to follow the advice of your insurance company or medical exam company to prepare for your medical exam. For example, you may need to limit your intake of salt and alcohol and avoid caffeinated beverages before the test. You'll want to do everything in your power to ensure the best possible results to qualify for the low fee.
Assuming your health is not ideal will prevent you from obtaining insurance
Don't assume you can't get affordable or life insurance if you have a health problem. All life insurance companies have their own underwriting guidelines. For example, some may be more forgiving of their heart problem. Some give better rates to smokers.
An independent insurance agent generally knows which companies are likely to offer the best rates for any health problems you may have.
Buy too little coverage
The more life insurance coverage you buy, the more you pay. This doesn't mean you should skimp on coverage, just to save money. An insurance scale study by Life Happens and LIMRA found that one in three respondents said they did not have adequate life insurance coverage.
To figure out how much life insurance you need, consider what should be covered, such as replacing your income, paying off your mortgage and other major debts, and paying the financial obligations for your children's college education. Then think about the assets you have, such as savings for college, to cover these costs. The difference between your assets and your liabilities is the gap that life insurance must cover.
Not understanding what you are buying
Understanding the types of life insurance is not an easy task. To get started, understand the difference between life insurance and permanent life insurance. Term life insurance costs a lower policy and remains in force only for a set period, such as 10, 20, or 30 years.
A permanent life policy is for life and can generate monetary value that you can access while you live. Perpetual life options include full life, which will be more expensive because it provides a fixed rate of return on money value and a premium that does not increase over time.
A global life policy can be cheaper than a lifetime, but also more complex because the premiums and investment earnings in the monetary value component can vary. Make sure you ask a lot of questions before buying an insurance policy.
"If you don't understand it, don't buy it," says Ardeli.
Failing to get financial and legal advice
Life insurance must be part of a comprehensive financial plan. If you have an accountant or financial planner, you should consider how your insurance needs fit into your financial plan before purchasing an insurance policy.
If you don't already work with a financial professional, ask your friends and family for recommendations. Additionally, you can find a paid financial planner through the National Association of Personal Financial Advisors or a licensed hourly planner through the Garrett Planning Network.
Postpone buying life insurance
The biggest mistake when buying life insurance is waiting to buy the insurance policy. Budgets and time can easily drive your life insurance purchase. And don't wait in the hope that your health will improve, such as weight loss, because you age every year and waiting increases your chances of developing other health problems.
The younger you are when you buy life insurance, the more affordable it will be. This is because your age and health affect the price you pay.
"You will never be as young or as healthy as you are now," Stafford says. "The sooner you get life insurance, the sooner you can get a low rate."
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