Life Insurance Mistakes to Avoid Author:    Posted under: Life InsuranceLife Insurance questions answered

If a lot of people are living with inadequate health insurance, and many others going without it, you can be sure that the same can be said about life insurance.

A study done on August 2010 by LIMRA, an insurance research organization, showed that ownership of individual life insurance has fallen to a 50-year low. Currently, 30 percent of households (translating to 35 million) have no life insurance coverage compared to only 22 percent of households in 2004.

The decision to let your life insurance policy lapse, or completely expunge life insurance coverage from your list of financial priorities would be the biggest mistake to make, especially since Americans have less to fall back on financially today. Consider how vulnerable your family would be upon your passing and your mortgage still needs to be paid, funeral expenses have piled up and the children still need to go to college. Your spouse will be left to deal with the heavy financial burden your passing will place on his or her shoulders aside from the emotional turmoil that comes with losing his or her partner.

Below are some more common mistakes people commit when it comes to life insurance coverage:

Underestimating your family’s future needs. Utilize online life insurance calculators to determine how much your family will need in the event of your death. Also remember that one family’s needs differ from yours – what suits them won’t necessarily suit your family. Coverage of only $10,000-$50,000 may not go very far – it certainly won’t be enough to pay off your mortgage, your debts, send your children to college and support your surviving spouse for a few years. Try to find out how much it would cost for $250,000-$300,000 coverage as it may be cheaper than you believe it to be.

Undervaluing your stay-at-home spouse. While it’s true that your non-working spouse isn’t bringing in finances to the family, consider the work that he or she does around the house. The cost of childcare, housekeeping and cooking among others may put a dent on your finances when the stay-at-home spouse is no longer there to do those tasks. You may either have to work double time to make enough to cover for those expenses or cut back on the hours you work to do them yourself.

Buying life insurance without a medical exam. Doing so may cost you 2-3 times more than the price of a normal life insurance policy, and if you’re in perfect health this will only be a waste of valuable resources. Although medical examinations may be inconvenient, it will save you more money in the long run.

Failure to update your policy as life changes happen. You get married, then you have a child, then you decide to buy a house. All these scenarios have an impact on your life, and the future of your family and it is important to ensure that your policy is suitable to your family’s growing needs. Don’t forget to update the beneficiaries listed on your policy as well. This is to guarantee that the death benefits go to the right persons – the ones who will need it the most when you are gone.

Allowing your life insurance policy to lapse when purchasing another. It’s always better to wait until your new policy is in force before cancelling your old one. This way, there is no period of interrupted coverage – you really can’t be too sure of what might happen those few months in between life insurance coverage.

Lying to or omitting information from the insurance company. Always remember that if you lie on your application, or withhold valuable information from your insurance company, they will have cause to not honor the death claim and your family might only get a refund of the premiums if your deception is found out. Insurance companies have a way of finding out about these things anyway. Be honest about your medical history and let them know what, if any, treatments you are undergoing and medications you are taking.

Buying life insurance coverage without understanding your policy. Work with your agent or broker to make sure you understand your policy. Read the fine print. If there is anything at all you don’t understand, letting your pride get in the way will not serve you. Ask and get the information you need to make sure you and your family know the full benefits to be obtained in the future. Remember to do this all prior to buying life insurance coverage.

Speak to a trusted, reputable financial advisor so that they can make a professional recommendation based on your family’s needs. Don’t forget to also comparison shop and review different policy types before making your final decision.



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