Purchasing life insurance can be overwhelming without the proper guidance to make the process seamless. Because of this, people often make several mistakes when trying to find and set up a policy that works for them. To help you get the best life insurance for your needs, we’re breaking down the top mistakes you want to avoid.
1. Name a Minor as Your Beneficiary
Naming a minor as your life insurance beneficiary can be complicated. Many life insurance companies won’t pay out the benefit amount until a person has turned 18, rendering the funds useless when most beneficiaries need them.
If you intend for your life insurance policy to help replace your support in the event of your death, things like childcare, tuition, and housing costs are usually necessary immediately. Don’t delay payouts by only setting minors as your beneficiaries; instead, name a spouse or establish a trust in which your minor dependents will be paid immediately.
2. Not Updating Your Policy
It’s important to update your policy periodically to avoid any surprises, especially lapses in coverage. To help prevent this, check in on your policy every time there is a life change or annually.
When life changes for the good or bad, the last thing you’ll want is to have the wrong beneficiaries on your policy or be underinsured when your loved ones need the benefit most. Your life insurance company should be able to help you navigate any changes and decide where to adjust your policy to reflect your life better.
3. You’re Underinsured
Life changes – constantly. Don’t get caught being underinsured. It’s easier to remember to update your policy when you add a spouse or child, but there are other situations when it’s important to make sure you’re adequately insured.
Purchasing a house? You may need to up your life insurance coverage to help cover the mortgage in the event of your death. Was your child accepted into college? You may be able to update your life insurance policy so that your policy amount has enough to cover the tuition if you can no longer support them directly. Being underinsured is nearly as bad as having no coverage at all.
4. Only Naming One Beneficiary
Even if you seemingly have one beneficiary (a child, spouse, business partner), it can be a disservice to only name one beneficiary on your policy. This is because if that individual dies before you do, or even at the same time, the life insurance company will have no one to pay the benefit amount to.
It’s crucial to name secondary beneficiaries or create other plans to act as a safeguard in the case that your primary beneficiary cannot accept the funds.
5. Waiting to Purchase
It makes sense to think that a life insurance policy is most necessary when older, but the reality is that you can pass away at any time. Waiting to purchase life insurance means leaving your loved ones uninsured until you decide to purchase.
Not only will it leave your family vulnerable, but it can also be much harder to find a life insurance company willing to approve your application if you’re older and have failing health. Because of this, it’s best to purchase early on to avoid absorbent premium prices at the very least.
The Bottom Line
Life insurance is not something that you purchase and forget about. It’s important that you continually monitor and update your life insurance policy as needed in order to avoid a policy that does not benefit anyone in the end.