Buying life insurance? Don't do this.
The benefits of life insurance are significant for both policyholders and their beneficiaries.
In exchange for a monthly fee to a provider (which can be cheaper if paid annually) the insured can have peace of mind knowing that their loved ones are protected. Their beneficiaries are also secure knowing that they will have financial support after the death of the insured.
While the advantages of having a life insurance policy in place are clear, there are some pitfalls purchasers - and current policyholders - should steer clear of.
If you're in the market for life insurance, or simply want to boost the protection you already have, then reach out to an expert now who can help you find the best plan for your needs.
Don't make these mistakes when buying life insurance
Buying life insurance isn't hard but there are still some mistakes you can make during the process. Here are three things you shouldn't do.
Buy the wrong type
Life insurance comes in all sizes. Term, whole, universal and variable life insurance policies each have their own unique advantages and disadvantages. They also range significantly in terms of cost. This is why it's so important to pick the right type for you and your beneficiaries.
Term life insurance, for example, is generally better for younger people as it comes with less expensive premiums and provides coverage for extended periods of time. Whole life insurance, meanwhile, has a cash-out option that policyholders could potentially access after it's been built up. But it comes with a heftier price tag and may be prohibitive for those who can't pay such a significant sum.
Do a realistic inventory of what you can afford - and what protection you want - and then pick the policy that meets both goals. A life insurance expert can help guide you to the right choice.
Only rely on an employer-provided plan
Many American adults already have life insurance via their employer. As part of a package that often includes medical, dental and vision benefits, many employers also provide a form of life insurance protection.
Some quick calculations, however, should show that the baseline level of protection offered by an employer isn't enough. That's because many employers offer one to two times the employee's annual salary. But insurance provided privately can offer significantly more.
In fact, if you're eligible, you can get protection for hundreds of thousands of dollars and possibly $1 million or more.
So keep the life insurance your employer provides but make sure to supplement it if it's not enough.
Incorrectly list your beneficiaries
Even if you have the right policy type - and a significant enough amount between your private and employer plans - you still need to be diligent about listing your beneficiaries.
After all, the whole point of having life insurance is to leave financial support for your loved ones in your absence. So it's crucial that they can then easily access that help.
What does this look like? For starters, you'll want to make sure you have multiple people listed (ideally a primary beneficiary and two contingent ones). Primary beneficiaries could be hard to track down, may refuse the funds or could have even died since the policy was first created. So, make sure you have someone else who can also receive those funds.
You'll also want to be cautious when adding minors. Should you die and your beneficiaries are not of legal age, they will endure a possibly arduous legal process to obtain the funds. Restrictions on how much money minors can access via a life insurance policy vary from state to state so the transfer won't be as clean and simple as it would be with an adult. In some cases, the court may even have to appoint a guardian to administer the funds.
So do your homework and make sure your beneficiaries are properly listed and let them know how they can access the account should they need to submit a claim. A life insurance expert can help you get started.
The bottom line
Life insurance is a fundamental part of sound financial planning. So take advantage of it by getting the right policy, supplementing it with additional coverage and listing the right beneficiaries to cash it out.
Have more questions? Speak to a life insurance expert now to get started.
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