Purchasing life insurance is a necessary task to ensure our loved ones are financially secure if we were to pass away.
For many people, purchasing this form of insurance can be a very confusing and intimidating process. Buying a life insurance policy is not a process you need to rush into. However, many of us fail to understand what our policy actually means. With that being said, here are the 5 common mistakes people make about purchasing life insurance and how you can avoid them:
1. Failing to Buy a Life Insurance Policy When You Need It
No one wants to think about all the details that go into buying a life insurance policy. Thinking about your own mortality is a grim subject, and talking about it with others can be even more challenging. Facing the fact that you need to make plans for your final days can be uncomfortable. If you have loved ones who depend on you, such as a spouse or children, it is an unpleasant, but necessary, task that needs to be taken care of.
Because it is an uncomfortable topic, specifically at a young age, many people put off thinking about insurance until much later in life. Even if you are young, it is important to review your need for life insurance as you also have many reasons to purchase a policy. If you have family or other people that depend on you for financial support or care, you should have a life insurance policy. If you share a business with a partner, for example, you need to have a policy in place that will protect the company after your passing. This way, your business partner has the financial means to carry on.
2. Believing the Plan from Your Employer Will Be Enough
Most employers offer a group life insurance plan for their employees. This plan usually offers basic coverage that provides minimal protection for your loved ones, but only if you die while still employed by the company. The amount is generally a flat amount or based on your salary, but most people don’t know what their plan covers. While this coverage can be helpful, it is usually not enough to provide your spouse or children with the amount of money they need to cover their ongoing needs and expenses.
If you think your life insurance needs are covered just because you have a policy through your employer, you may need to read over your policy to better understand your coverage. Many group life insurance plans will give you the option to buy more coverage. However, purchasing additional coverage through your employer – or solely depending on that coverage for life insurance – is not recommended. There’s also the chance that you may lose your job and all your coverage as well.
It is recommended that you purchase a policy outside of your place of employment to guarantee you will have coverage, no matter what happens with your job.
3. Not Taking Out the Right Amount of Coverage
How much life insurance do you need? That can be a very tricky question, and unfortunately, it is one that many people fail to think about when they are taking out a new policy. Sometimes you may hear a rule of having insurance of 10 times your annual salary. Although that approach may be accurate for some people, there are many other factors other than your salary that determine your need for insurance. For example, if you have a mortgage and a couple children, your need may be higher than someone that earns the same salary without a mortgage or children.
Many insurance agents will recommend that you base your amount of coverage on lifestyle continuation. So, if you passed away today, what amount of coverage would your family need to continue living the same lifestyle? You will want to set aside enough money to pay off the current mortgage on your home, ensure your children have enough money for their tuition, and other items that are important in your individual circumstances. Our Hometown team is happy to provide a complimentary review of your insurance needs to determine how much coverage your family needs to secure their short and long-term future.
4. Underestimating What Your Value Truly Is
Many stay-at-home parents or homemakers do not take out a life insurance policy because they feel that since they do not contribute to their household income, they don’t need coverage. However, the value a homemaker brings to the family’s household is one that can’t be replaced. Even if they do not bring in an income, the consistent care and services they provide also have monetary value. If the income earning partner suddenly had to pay for costs like child care or keeping up the home, it would add up quickly. Additionally, the surviving partner may now have to adjust their working schedule for reduced hours, or change their job altogether to look out for the well-being of their family.
Even if you feel you do not contribute financially to your household, your family still relies on you in some way. That should be factored into the amount of coverage you need when buying a life insurance policy.
5. Not Letting Others Know About Your Policy
Many people make the common mistake of buying a life insurance policy, and not letting their family members know about it, or how to access the benefits. The whole purpose of purchasing a life insurance policy is to ensure your beneficiaries are financially taken care of when you pass on. If they don’t know anything about the company you purchased the insurance from, or do not know the policy exists at all, how can they benefit from it?
Let your beneficiaries know all about your life insurance policy while you can. Tell them where the information is located, and provide them with all the details such as the company’s name, the benefit amount, the beneficiaries you have named, and who they can contact to file a claim. While all of this may seem obvious for some, surprisingly, many policyholders fail to complete this necessary task. This results in many life insurance policies never being claimed, and all of the premiums and planning that went into the insurance plan are done for nothing!
Conclusion
We all make mistakes. However, each one of us have the ability to learn from them and grow. We believe it is important to help educate our clients about some of the most common mistakes that we see across the life insurance industry, so you don’t have to learn the hard way. Our highly skilled team of professionals at Hometown Life Insurance are happy to answer your questions, provide insight, and help you find the right insurance coverage for you and your family. You can contact us to complete a complimentary insurance review, to ensure you won’t be making a costly mistake while you are doing your best to take care of your loved ones.
