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Life insurance is an important purchase, and buyers don’t want to make mistakes that will jeopardize the financial security of their loved ones in the event of an untimely death. Unfortunately, many people make costly mistakes when obtaining life insurance. Knowing about some common mistakes can help you avoid them. Here are seven mistakes many people make that can be avoided with a little advanced knowledge.
1. Failure to fulfill your contractual obligations
One of the most common mistakes is failing to pay premiums until the end of the contract term. If you haven’t given it enough thought, discontinuing, surrendering, or lapsing your policy in the middle can be costly. Remember that if you purchased the plan after conducting a thorough needs assessment, you must return to it to validate the relevance of your goals. Your policy is relevant if the goals remain relevant. Some people terminate the contract to cover short-term liabilities. Check to see if the insurer offers a loan facility on the policy. If that works, take the loan and keep your policy. There may be additional factors, but before moving forward, you should be completely aware of the consequences and have an open conversation with your insurer. Please keep in mind that if your insurance needs to grow and change over time, rather than canceling your policy, you must constantly assess your financial goals and ensure that the job you want to be done is completed.
2. Putting off purchasing insurance for too long
Delaying the purchase of life insurance is a common mistake that can have serious consequences. Individuals who do not yet have dependents may believe they can postpone purchasing coverage until they marry or have children. However, purchasing a policy when young and healthy can be less expensive and more accessible.
It’s riskier to put off buying life insurance until later in life when the likelihood of developing a pre-existing condition that renders standard policies unaffordable rises. You can expect to pay higher premiums if you buy a policy later in life or after a pre-existing condition is discovered. As a result, those who anticipate having dependents in the future may want to purchase coverage. Get the most affordable policy as soon as possible to avoid leaving future dependents unprotected.
3. Purchasing the incorrect type of insurance
Another costly blunder is purchasing the incorrect type of insurance. For example, some customers may believe that whole life insurance is appropriate for them because they want to have protection in place indefinitely. In contrast, most people can save money by purchasing a term life insurance policy. Term life insurance policies are valid for a set period, such as 20 or 30 years, and the death benefit is paid only if the policyholder dies during the term. On the other hand, whole-life policies remain in force as long as premiums are paid, so a death benefit is always paid out.
However, most people do not require lifetime coverage from whole life insurance. This is because, in most cases, people only temporarily rely on the policyholder’s income or services.
4. Maintain communication with your family
Remember that the policy was purchased for the benefit of your family, so failing to discuss the policy’s details, claim process, and so on with your spouse or parents, particularly the nominee(s), can cause them great discomfort in times of need. Policy bonds should also be kept safe and accessible to your family. The good news is that electronic insurance account facilities allow policyholders to request digital versions of their policies (which works similarly to Dematerialized shares).
5. Know the specifics before you sign
The life insurance contract form is the most crucial document you will ever sign, but most people leave form-filling to the distributor or salesperson. The insurance company will take the information provided in the life insurance application as complete and accurate. Failure to provide accurate information about your health, occupation, family history, and lifestyle can result in a claim being denied by the insurance company. Consequently, it’s essential to take one’s time when drafting contracts.
6. Purchasing insufficient coverage
Customers purchasing life insurance may also end up with insufficient coverage. This could occur if a person purchases insufficient protection because they fail to consider issues such as debt or their child’s education. However, buying too much coverage may be a mistake because it makes insurance more expensive than necessary.
Life insurance aims not to make surviving family members wealthy but to ensure their basic needs are met. The DIME formula can help you figure out how much coverage you need. This is an abbreviation for debt, income, mortgage, and education. Consumers should purchase a policy with a significant death benefit to pay off outstanding debt, replace their income for years, pay off their mortgage, and cover their child(ren)’s education.
7. Making poor beneficiary selections
It is critical to select beneficiaries carefully because these are the people who will receive the death benefit. It’s common practice to name beneficiaries on a life insurance policy instead of letting the policy pass to the policyholder’s estate. Beneficiaries will receive the money tax-free and will not be included in the probate estate, avoiding the need to go through the probate court process and potentially being subject to estate taxes with larger estates.
A contingent beneficiary should also be named so they will receive the inheritance in the event the primary beneficiary passes away before the policyholder. If the primary beneficiary dies, the life insurance policy becomes part of the estate and must be probated. Failing to designate a contingent beneficiary could be a costly oversight.
These errors are best avoided, and the best way to avoid them is to be aware of and understand your rights!
Bill and his associates of Faith Financial Advisors have over 30 years’ experience in the financial services industry.
He has been a Federal Employee (FERS) independent advocate and an affiliate of PSRE, Public Sector Retirement Educators, a Federal Contractor and Registered Vendor to the Federal Government, also an affiliate of TSP Withdrawal Consultants.
Bill will help you understand the FERS Benefits and TSP withdrawal options in detail while also helping to guide you in your Social Security choices.
Our primary goal is to guide you into your ment with no regrets; safe, predictable, stable and for life using forward thinking ideas and concepts.
> Financial Services consultant since 1984
> FERS independent advocate and an affiliate of Public Sector Retirement Educators (PSRE), a Federal Contractor and Registered Vendors to the
> Affiliate of TSP Withdrawal Consultants
> His goal is to guide individuals into retirement with safe, and predictable choices for stability using forward thinking ideas and concepts.