Some people shy away from what they think is a morbid task; securing a life insurance package, and that often leads to mistakes when choosing coverage according to USA Today.
Relying on employer-provided insurance could ultimately be costly as those policies generally pay a death benefit of $10,000-$25,000, usually only enough to cover funeral expenses. People who are young and in good health will often find better rates and coverage with an individual policy, according to the paper.
Don’t Choose the Wrong Policy
The two basic types of life insurance: term and permanent, are the keys to the kingdom.
Term policies pay out a specific death benefit and remain in place for a set period of time, and term life insurance can be purchased for 5, 10, 15, 20 or 30-year ‘terms.’
Permanent life remains in force over the course of your life. Whole life, variable life and universal life are all types of permanent insurance. A whole life insurance policy allows you to build cash value that you can draw against later on. Universal and variable life policies are tied to different types of investment vehicles.
When you’re trying to choose between permanent and term life insurance coverage, fully assess your goals and then weigh those assessments against premium costs.
If you only need enough coverage to pay off the house or credit cards if your spouse is incapacitated, a term policy makes the most sense.
If you’re looking for something that will allow you build toward an ultimate return on your investment, consider a permanent policy.
Underestimating Your Coverage Needs
In addition to choosing a policy type, you also have to decide how much of a death benefit you need. If you’re just picking a number out of thin air, you run the risk of your beneficiaries coming up short later on.
There are a number of factors you’ll want to consider when you calculate how much coverage you’ll need. Factors such as your age, health, life expectancy, income, your debts and current assets all play a part. If you’ve already built a sizable fortune and don’t have much debt, you likely don’t need as much coverage. If you have small children and your spouse doesn’t work, purchase enough insurance coverage to provide for them financially over the long-term.
Skip Comparing Rates
Shop around to make sure you’re getting the best rate. Signing up for a life insurance policy without comparing rates from many different companies makes no sense.
Look at multiple plans supply exactly the same information to each insurer. You want an apples-to-apples comparison. Review the different policies and note any critical differences in the coverage they offer to receive the most accurate quotes.
Price Is Not the Entire Answer
While you might pay less out of pocket, you need to consider whether or not any money you save is worth changes in how your family may be affected down the road. Look at your budget and identify areas you can cut back to prevent buying less coverage than you really need.
It’s Not a Waiting Game – Act Now
The sooner you buy life insurance, the better as premiums increase as you get older. If you’re in relatively good health later in life, you’ll still pay more in premiums as each year you wait passes, and you run the risk of developing a serious illness or disease which will drive up the cost of insuring yourself – or even make it impossible to buy coverage at all.
Buying packages from weaker companies because of lower rates can also be a fatal mistake, Martin Weiss, president of Weiss Ratings, told the paper. Consumers should be aware of a company’s safety and financial standing, as struggling companies are likely to delay or obstruct the claims process, he said.
Finally, lying about health conditions or risky hobbies can be devastating as insurers could potentially deny a claim based on fraud, or lower the policy’s death benefit.
Although many assume life insurance is only necessary for people with spouses or children, anyone who has someone in their life who could suffer financially in the event of their death should consider purchasing a policy, according to the Life and Health Insurance Foundation for Education.
Purchasing additional protection can continue a family business if owned and help pay off debt including a mortgage and credit cards so that family members do not have to assume that responsibility. Term life is the most affordable and pays for a specific time period. You can request coverage when specific debt is paid off so term offers flexibility and that added coverage that employer insurance just does not provide.