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.













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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.