You’ve decided you’re at that point in life where others rely on you – perhaps a spouse, children or other dependents – and you’ve decided it’s probably a good idea to buy a life insurance policy. You want to make sure your family or loved ones are taken care in the event of your death.
Before you set about purchasing life insurance, here are some common mistakes to avoid when buying life insurance in the process.
1. Assuming your group life insurance is enough.
Many employers provide group life insurance as a benefit, but it may not be enough for your needs. When you leave the company, it might end. Be sure to consider your other options and augment your group insurance policy.
2. Getting the wrong kind of life insurance policy.
Be sure you understand your options before you settle on the type of insurance to buy. Should you get term or permanent? With term insurance, your payout happens within a set amount of time, say 20 or 30 years. If you outlive your policy no one receives the benefits. Permanent (whole, variable and universal), however, has no such limitations. Permanent policies are more expensive, but have cash value. Learn more about the differences, and the pros and cons of different types, here.
3. Thinking you’re too young to get life insurance.
Purchasing a life insurance policy while you’re young and healthy might be the way to go. Your policy will cost less than if you wait until you’re older. Rates increase as you age and become less healthy.
4. Choosing a minor as beneficiary, or not naming a beneficiary at all.
If you don’t name a beneficiary and leave your insurance payout to your estate, it could be stuck in probate for a long time. Don’t name a minor as a beneficiary. Instead, name a trusted adult or set it up as a life insurance trust for your children. Be sure to identify a trustee. Find out more about naming a beneficiary in our article Who Will You Name as Your Life Insurance Beneficiary?
5. Not comparing policy rates.
Don’t just go with the first policy you get a quote for. Compare rates and find out how much you’d pay for the same policy coverage with different providers. A life insurance quote tool can help you find the policy you need at the best price.
Find out more about life insurance and how it works before making your final decision about which policy to buy. Once you have life insurance, revisit it every year to make sure it still meets your need. Life changes, and your policy should be kept up to date with your circumstances.