Four common life insurance mistakes to avoid
According to the 2018 Insurance Barometer study, it was found out that 60% of Americans were covered by some type of life insurance policy. Fast forward to 2020, we have not seen a huge number in that regard. However, did you know that 40% of life insurance owners wish that they had invested in this particular life insurance policy at a much younger age?
What is Life Insurance?
Life insurance is an official contract between the person applying for it and the insurance company in which the insurance company will have to a lump sum amount to the beneficiaries of the person upon his death in return for the premium payments he/she makes when alive.
There are different kinds of life insurance policies like term life insurance, universal life insurance, whole life insurance, etc. from which the person can choose accordingly.
Why a person chooses Life Insurance?
As per the latest survey, 40 percent of American citizens do not have any life insurance to support their families. Among them, 35 percent of the households are said to feel the financial difficulty in a month, if the earning member of the family passed away.
Life insurance is a way of making sure that your family is safe and their needs and requirements are met even after your death. Knowing that the safety of your family is in good hands will help each of us lead a better, happy, and peaceful life.
- To pay for unpaid medical bills, funeral, etc. and not burden your family
- To leave behind money for your spouse and kids so that they can have a better lifestyle
- To donate fund for a good charitable cause
- To pay for college, taxes or loans
- To enjoy some of the tax-free advantages life insurance provides
The common life Insurance mistakes one must avoid
There are some common mistakes people make while choosing a life insurance policy. Four of these mistakes will be discussed here so that you can avoid them
1. Miscalculating the insurance requirement
It can be a little difficult to determine an ideal amount of Insurance cover that your family might need after your demise.an put your family in a difficult situation. But make sure that you spend enough time and thot before choosing an insurance coverage plan. So make sure that none of this happens.
Some people might end up over-insured and some under-insured. Over insuring can lead you to not be able to deposit the premium amounts at the right time. And under-insuring can put your family in a difficult situation.
So make sure that you compare the insurance coverage amount with your early expenses and the future needs of your family like marriage, mortgage, retirement, etc.
2. Relying only on the free Life Insurance at Work
Most of the companies provide great insurance policies for you and it is a good thing. But relying completely on such insurances can at times backfire at you. These insurance plans might not be adequate if you are a family man and the only earning member in your family.
Also, these plans will become invalid if you lose your job due to some reasons, which is a greater risk. In most cases, the insurance coverage the companies offer will be less than $100,000. This amount will be enough to pay for your funeral, but it won’t be enough to pay for your kid’s college or if you have a loan.
Having a personal loan separate from work’s insurance will help you even if you lose your job and will be enough to satisfy the needs of your family. It is always better to be safe than risk something when it comes to family.
3. Cheating on your Insurance Application
This is one of the most common mistakes people make while applying for insurance and later suffer. It can be very tempting to hide some of the truths about your health, work, family history, and lifestyle while applying in order to get a lesser premium amount, but never do it!
The insurance companies have access to various files and reports of people including the Medical Information Bureau reports. They also collect various health reports and results from your doctors and match it with the information you have provided. If any discrepancies are found between those two, your insurance policy will be canceled out, which will leave nothing to your beneficiaries.
So make sure that you are honest while filling the forms. Honesty always pays off.
4. Not Reviewing and Timely Updating your Insurance policy
A life insurance policy is not a one-time deal that you can forget about later and expect the results when needed. It must be renewed in a couple of years and any changes in your family’s financial structure must be updated.
The changes in family structure can be due to marriages, birth, job change, home purchase, deaths, divorce, etc. Make sure that you give enough importance to your life insurance policy and update these details when needed.
Not renewing and updating your policy when such life events happen can lead to serious issues when you are not around. These issues can lead to a long processing time of the amount to your beneficiaries or even cancellation of the policy.
A life insurance plan is one of the best ways to make sure your family is doing well even when you are not around. There are different types of insurance plans and you must make sure you choose the best and apt one for your family or beneficiaries.
There are also a lot of common mistakes that you might make while applying for an insurance policy, so make sure that you are well informed about everything and try to avoid these mistakes. If you have not yet applied for life insurance, hurry up now, and ensure a safe, secure, and happy future for your loved ones.