Life insurance is the cornerstone of any solid financial plan, offering an alternative income source for your survivors if you meet an untimely death. Unfortunately, buying life insurance can be a bit complicated, and there are some pitfalls that people usually fall into, which only result in them having too little coverage or spending more money than they need to.
Understanding these 5 pitfalls can help you to make a better choice when you get a policy.
1. Not Having Adequate Insurance
One of the biggest errors in buying life insurance is buying too little. Most people choose a policy that allows them to pay their current bills but does not consider their future financial requirements. Your life insurance coverage should not only pay off your debts and your funeral but also cover your children’s education, your spouse’s retirement, and ongoing living expenses.
You must properly evaluate your financial standing and future goals to ascertain the appropriate coverage amount. Talking with a financial planner can also help remove much of the guesswork while ensuring your policy adequately protects those you care about.
2. Dependence on Employer Insurance Alone
While employer-provided life insurance is convenient, it rarely provides comprehensive coverage. The policies generally pay out a death benefit between one to three times your annual salary, which may not be enough for all your family might need in the long term.
The other concern is that, for many, employer-provided insurance is tied to your job, so you may lose your coverage if you change jobs or lose your employment. So, having an individual life insurance policy, regardless of your employment situation, is smart.
3. Picking the Wrong Policy Type
There are different types of life insurance, such as term life and permanent life insurance. Term life insurance is simpler and more affordable because it covers a set period. Permanent life insurance (e.g. whole life, universal life) provides coverage for life and an investment portion that grows cash value. This is where the problems start, as most people do not have the knowledge required to complete their search for the right type of policy and often buy the wrong type.
Term life insurance may be the best choice if you need coverage for a certain period (e.g. until your mortgage is paid off or your children are self-supporting). If you want the policy to be in place for the rest of your life and potentially store cash value, permanent life insurance may be more appropriate.
4. Embracing Quality of Life
The insurance company will look at your health and lifestyle to calculate your life insurance premiums. A lot of applicants also fail to consider how their choice of smoking, excess weight or possessing a pre-existing medical condition can affect the rates.
When it comes to insurance, you are measured on this risk; the higher the risk, the higher your premiums tend to be. Be sure to include truthful and accurate information in your application to avoid future problems or denial of benefits.
If you are healthy, you might also be eligible for lower premiums. Explore around and get quotes from various insurers. For example, ACKO Insurance is a well-reputed insurer offering competitive prices, making it a good option to explore.
5. Failure to Review and Renew Your Policy
Purchasing life insurance in the first place is only half the battle—you will need to make changes as your requirements evolve. As you go through major life events—like getting married, having a new child, buying a home, or having significant changes in your financial status—it is good to re-assess your coverage.
If you fail to update, you may not have enough coverage to meet your needs or be paying for something you no longer need. Review your policy regularly with your insurance agent to ensure it meets your current needs and financial goals. Taking this proactive approach is beneficial to prevent any potential gaps in coverage and help protect those you love.
Conclusion
By sidestepping these pitfalls, get life insurance that ensures adequate coverage. Stay informed, review your policy regularly, and consult with a financial advisor if required to make the best decisions for your loved ones’ financial stability. Also, be truthful and provide accurate information in your application to avoid future problems or denial of benefits.
Also Read: How to Choose the Right Investment Plan with Life Insurance Coverage
