10 Mistakes People Make When Buying Life Insurance

10 Mistakes People Make When Buying Life Insurance Episode 354 – Finding the right life insurance policy can be complicated, and it’s easy to get confused. Here are ten common mistakes we see people making when they purchase life insurance. More SML Planning Minute Podcast Episodes Transcript of Podcast Episode 354 Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, ten mistakes people make when buying life insurance. Many people agree that they need life insurance to protect their loved ones, future heirs and businesses. It’s which type of life insurance and how much that trips people up. And there are a lot of places where things can go wrong. Too often people make mistakes. Here are ten common mistakes people often make when they purchase life insurance. Buying term to cover a permanent need. People like term life insurance because the premium is typically way less than a permanent life insurance policy. But keep in mind that the coverage goes away after a fixed period, say 20 years. Then what are you going to do? Term life insurance is great for a temporary need, such as protecting your children while they are still young. But if you want to keep the policy after the term expires, you’re likely to experience sticker shock. It may be better to buy permanent life insurance coverage from day one. Your older self will thank you. Understand, term insurance can be an excellent protection strategy for a limited time period, but it can prove costly in the long run. Owning it yourself. If you own the policy when you die, it becomes part of your estate. Estate taxes are generally an issue for the wealthy, but not necessarily if you live in one of the 11 states (plus the District of Columbia) that have their own separate estate or inheritance taxes.[1] Not paying attention to guarantees. Traditional whole life insurance has guaranteed cash value and death benefits for your lifetime provided you pay the required premiums. Other types of permanent coverage, such as variable, universal and indexed universal life insurance may offer some guarantees but the premiums may need to be increased to maintain lifetime protection. Picking the wrong beneficiary. We’ve talked about this at length in the past. The wrong beneficiary could be a minor child or someone who eventually becomes an ex-spouse. Think before you act, and make sure you understand the rules. Revisit beneficiary designations periodically to ensure they remain appropriate. Not having a contingent beneficiary. If your primary beneficiary dies before you do and no contingent beneficiary is named, then the death benefit will be paid to your estate and be subject to probate. Probate is the public (and sometimes expensive) process of distributing your assets after you’re gone. This may not be what you wanted. It pays to have a backup plan. Failing to keep it up to date. Things change. You get married. Or have a child. Or change jobs. Or you need more coverage because of inflation or an increase in income or debt (like a new mortgage). An annual review is a good place to start making sure that your policy still meets your needs. Remember to think about beneficiary updates, too, for both your personal policies and any life insurance coverage you have through your employer. Not getting enough of it. According to a recent report, 41 percent of Americans feel that their life insurance coverage is inadequate.[2] The long-term impact of inflation cannot be overstated here. Previous generations were able to live comfortably with assets of a million dollars. That would be pretty tough for most of us today. You would be wise to periodically confirm the amount of insurance you may need to be adequate. This can be especially important following major life events like those mentioned previously. Not being able to keep up with the payments. What happens if you’re running out of money? Which do you pay first, your mortgage or your life insurance premium? It’s important to get a policy you can afford. In the long run, the alternative may be worse than no coverage at all. If you find yourself in this situation, check with your agent to see what options may be available to you. Waiting too long. The older you get, the higher the premiums. But more than that, your health is bound to change over time. If you procrastinate, an adverse health development could make a new policy even more expensive or completely unavailable. Not understanding the available riders. With a permanent policy, a chronic illness or long-term care rider could help ease your mind when you’re thinking about possible future expenses for your care. A paid-up additions rider can provide an extra death benefit with each premium payment. It also helps to build the policy’s cash value. Limitations apply to these riders. Make sure you understand how each one works. Know the costs and benefits and any limitations. Like so many other things in life, life insurance can be more complicated than it first appears. It’s best to have a skilled and trusted professional by your side to help you avoid any pitfalls. Your Security Mutual Life insurance advisor can help. Your Security Mutual Life insurance advisor will assemble your team and coordinate with your attorney and tax professional to review your situation and to determine the insurance plan that will best suit your needs and objectives. [1] Zurndorfer, Edward A. “10 Most Common Mistakes to Avoid When Purchasing Life Insurance.” Myfederalretirement.com. https://www.myfederalretirement.com/life-insurance-3/ (accessed Nov. 21, 2024) [2] Horton, Cassidy. “Life Insurance Statistics, Data And Industry Trends 2024.” Forbes.com. https://www.forbes.com/advisor/life-insurance/life-insurance-statistics/ (accessed Nov. 21, 2024) More SML Planning Minute Podcast Episodes This podcast is brought to you by Security Mutual Life Insurance Company of New York, The Company That Cares®. The content provided is intended for educational and informational purposes only. Information is provided in good faith. However, the Company makes no representation or warranty of any kind regarding the accuracy, reliability, or completeness of the information. The information presented is designed to provide general information regarding the subject matter covered. It is not to serve as legal, tax or other financial advice related to individual situations, because each individual’s legal, tax and financial situation is different. Specific advice needs to be tailored to your situation. Therefore, please consult with your own attorney, tax professional and/or other advisors regarding your specific situation. To help reach your goals, you need a skilled professional by your side. Contact your local Security Mutual life insurance advisor today. As part of the planning process, he or she will coordinate with your other advisors as needed to help you achieve your financial goals and objectives. For more information, visit us at SMLNY.com/SMLPodcast. If you’ve enjoyed this podcast, tell your friends about it. And be sure to give us a five-star review. And check us out on LinkedIn, YouTube and Twitter. Thanks for listening, and we’ll talk to you next time. Tax laws are complex and subject to change. The information presented is based on current interpretation of the laws. Neither Security Mutual nor its agents are permitted to provide tax or legal advice. The applicability of any strategy discussed is dependent upon the particular facts and circumstances. Results may vary, and products and services discussed may not be appropriate for all situations. Each person’s needs, objectives and financial circumstances are different, and must be reviewed and analyzed independently. We encourage individuals to seek personalized advice from a qualified Security Mutual life insurance advisor regarding their personal needs, objectives, and financial circumstances. Insurance products are issued by Security Mutual Life Insurance Company of New York, Binghamton, New York. Product availability and features may vary by state.​ SubscribeApple PodcastsSpotifyAndroidPandoraby EmailTuneInDeezerRSSMore Subscribe Options