Life insurance is a valuable tool in your financial arsenal that’s designed to help your family live comfortably in the event of your death. Unfortunately, mistakes can cost you dearly when you need insurance most. Here are some common insurance pitfalls to avoid:
1. Naming your estate as beneficiary
One of the main benefits of life insurance is that your beneficiaries can receive the proceeds quickly, and without going through probate. However, if you make the error of naming your estate as beneficiary, it forces your loved ones to go through probate and potentially pay higher taxes. To avoid creating headaches for your family, make sure that you specifically name the people you want to be your beneficiaries and update them as needed. We also recommend naming several backup beneficiaries in case your primary beneficiaries predecease you. If you no longer have living beneficiaries when you die, the insurance proceeds will be paid to your estate.
2. Choosing a policy based on cost alone
No one wants to pay more than they have to for insurance (or anything else). However, going with the lowest rates may end up costing you a lot more down the line if you don’t get the insurance benefits you deserve. Besides competitive rates, look for an insurance company that is financially sound, offers good customer service, and has a reputation for handling claims fairly. A qualified insurance professional can help you compare policies to make sure that you’re not paying for options you don’t need.
3. Failing to get an insurance checkup Life insurance isn’t a set-and-forget purchase. It’s designed to help you protect what you love, and regular checkups can help ensure that your policy still meets your needs. Life happens: children are born, marriages end, and beneficiaries may pass away. Failing to keep your policies up-to-date can create future problems for your family. A life insurance checkup should help you answer questions like:
- Is my policy still in force?
- Are my beneficiaries current?
- Is the insurance company still financially sound?
- What need does this policy meet?
- Do I have the appropriate amount of life insurance for my current and future needs?
- Am I overpaying for options I don’t need?
4. Not having the right kind of insurance
Life insurance is complex and there are many factors to consider. One mistake we often see is that people only have the life insurance available to them through their employer. What happens if they get laid off or have a gap between jobs? It’s also unfortunately common for people to drop insurance policies without thinking carefully about their future needs. We strongly recommend that you consult with a qualified insurance professional who can help you find out if you have the right kind of insurance for your situation.