Common Life Insurance Mistakes

Investing in a life insurance policy is a great way to ensure that your family will be safe and secure after your passing. In some cases, you can even deduct your life insurance premiums as a business expense. 

However, there are a number of common life insurance mistakes and misconceptions that people make when applying for a life insurance policy. If you are searching for the best life insurance policy, be sure to avoid these 15 common pitfalls. 

Mistake #1: You waited too long to buy life insurance

This is one of the most common mistakes because no one thinks that life insurance is important until it’s practically too late. But the truth is that the sooner you buy life insurance, the more beneficial it will be for both you and your family.

Life insurance policy prices increase as you get older, and the chance of health complications heightens with age. In some cases, you may hit a point in your life where you won’t be able to buy any life insurance at all because you are considered to be a high-risk candidate. 

Avoid this mistake by looking into life insurance as soon as possible. Don’t wait for a major life change to actually start considering it.  

Mistake #2: You chose the wrong life insurance policy 

The process of getting life insurance can be overwhelming — and the various types of policies that are out there can make things even more confusing. It’s common to find yourself choosing a life insurance policy that does not meet your needs. 

Be sure to do your research to see which policy will fit your needs now and will fit your family’s needs in the future to avoid making the mistake of choosing the wrong policy. For example, you don’t want to choose a policy with a death benefit that will not be enough to support your surviving family. 

Just like homeowner’s insurance, car insurance or any other type of insurance, you’re going to want to compare life insurance rates between insurers before you choose the policy you want to buy. While you’re comparing policies and determining what it is you actually want and need, check out some different rates. We recommend getting a quote from at least 3 life insurance companies before you choose a policy option. 

Ensuring that you fully understand your life insurance policy is crucial. Choosing a policy that you do not fully grasp can become an annoying, stressful mistake in the future. 

Make sure that you understand every aspect of the policy and fully educate yourself about life insurance in general before you begin to shop for a policy. If you have questions, don’t be afraid to reach out to your insurance agent. 

Mistake #5: You failed to treat life insurance as an investment

Aspects of your policy tend to change over time, just like the stock market. People make the mistake of buying life insurance and forgetting about it. You should instead treat your life insurance policy as an investment, especially if you have a permanent life insurance policy which gains cash value over time. Be sure to check in on it and make adjustments where and when needed. 

Mistake #6: You failed to keep up with your policy

This mistake coincides with the mistake of failing to see life insurance as an investment. Failing to keep up with your life insurance details as your family changes can leave your insurance policy incomplete. For example, if a child or grandchild is born, you might forget to include him or her on your insurance policy. 

Check into your policy to confirm that the beneficiaries are still who you want them to be and that the premiums and aspects within the policy that you originally purchased are still up to date and in effect.   

Mistake #7: Your coverage is not enough for your family

This is a mistake that can be extremely difficult to confront because it will only come into play once you have passed on. Make sure you go over the calculations for coverage many times to ensure that your family will have everything they need when you’re gone. 

Mistake #8: Your life insurance is owned by you 

Owning insurance in your own name can lead to a massive amount of tax hurdles that your family will have to deal with after you’re gone. Your estate could be subject to federal estate and, in some states, state taxes. Consider having an adult beneficiary purchase, own and receive the policy. 

Mistake #9: You named your estate as beneficiary

You may believe that naming your estate as beneficiary will be beneficial to your whole family in the long run and now you don’t have to choose one person as beneficiary. Unfortunately, this is a major mistake that will cause you and your family a headache. 

Unless your policy is in the name of an actual person, creditors and debt collectors can gain access to it. In addition, the proceeds become subject to state inheritance taxes and higher rates. 

Mistake #10: You named 1 beneficiary and have no backups

The problem with only naming a single beneficiary is that if they die before you do, the benefits will transfer to your estate. This will have you running into the same issues that you would if you made the previous mistake. This will cause problems for all your other survivors because that means the money is now subject to debt collectors and taxes. Naming a backup beneficiary can help avoid this sticky situation. 

Mistake #11: You focused too much on the price of life insurance

When buying anything, what’s the first thing you look at? If you’re like most people, the answer is probably “the price.” While life insurance may not fit into everyone’s budget, you should avoid putting off buying life insurance if you can fit it into your budget. Instead of thinking about the price now, think about how much your family members will benefit after you pass on. 

You may think that getting life insurance through your employer is the easiest way to handle things, especially since employers usually pay a portion of the premium. However, more often than not, the coverage you’re getting through this group insurance is not enough to cover your family’s future needs. 

Be sure that you have a full grasp of how much money your loved ones will need to cover expenses after you move on. 

Mistake #13: You named a minor as your beneficiary

If you have a child, it’s only natural that you’ll want him or her to be taken care of after you pass. However, if you name a minor as your policy’s beneficiary and you die before the child reaches adulthood, your life insurance company legally can’t make payouts until the child becomes an adult or until the state appoints a guardian. 

This can cause stress and force your family to incur legal fees before they gain access to your policy benefits. Instead, choose a trusted adult as your policy beneficiary — especially if your child has multiple years before he or she turns 18. 

Mistake #14: You lied on your application

When you apply for life insurance, your insurance company will ask a number of questions about your health, employment, drug use, hobbies and more. Though these questions might seem invasive, it’s incredibly important that you answer honestly. 

Your life insurance company will verify all information you submit — and they may deny you coverage if they discover that you’ve outright lied or lied by omission. If you do successfully manage to hide something and your insurance company discovers this after your die, it may not pay out your death benefit to your beneficiaries.  

Mistake #15: You kept your policy a secret

Some people don’t like to talk about their finances, even with their own family members. However, it’s important that your beneficiaries know about the existence of your policy and what they should be paid in the event that you die. 

If your beneficiary doesn’t know that your policy exists, they can’t make a claim. 

Compare Life Insurance

Not sure where to begin shopping for life insurance? Consider a few of our favorite life insurance companies below.  

Investing in Life Insurance Now

No one likes to think about what would happen to their family after they die. Taking time now to ensure that your family will have financial support after you die can help you sleep easier at night. 

It’s never too early to begin thinking about life insurance — so we encourage you to start exploring your options today.   

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