common life insurance mistakes

4 Common Life Insurance Mistakes to Avoid

If you’re looking for life insurance, you have options. A lot of individuals think their age or having a previous medical condition automatically disqualifies them for affordable coverage which is not the case. The key to finding an affordable life insurance policy is to do your research and to have a good agent on your side. 

Part of the research process of discovering what life insurance options might be right for you is knowing what common mistakes individuals make when shopping for life insurance. We’ll give you some of the most common pitfalls you should avoid when shopping for life insurance. 

Pitfall #1: Not Hiring An Independent Agent

We can’t go any further in this article if you are planning on buying your policy directly from a carrier. By submitting your application to one carrier, you’re not getting the best policy for you, and you’re certainly not getting the best rates on your life insurance policy. 

An independent life insurance agent can take a look at your total picture: age, health, and financial needs. This is particularly important when looking for life insurance coverage, because your situation is unique, and needs to be presented as such.  

Multiple quotes across multiple insurers are the best way to find adequate coverage at an affordable rate. An independent agent can help you see how each carrier is different and can advocate for your situation, getting you the best rates every time. 

Pitfall #2: You Don’t Know How Much Life Insurance You Need

We don’t expect seniors to know the type of life insurance they need (see Pitfall #3), but something you should know when shopping for life insurance policies is how much life insurance you need, or the “face amount” of your policy. 

Because life insurance is designed to protect your loved ones after you’ve passed, you want to make sure you’re applying for the right amount. Too much, and you could be paying high premiums. Too little, and your loved ones could find themselves financially strapped. 

In order to figure out what you need, you should conduct an audit of your current financial situation, and what your project your family may need in the future. It helps to sit down with an insurance agent after you’ve done this independently so that you can make sure no stone is left unturned. 

Your life insurance policy should be large enough to cover any financial obligations that pop up after you pass. Here’s what items should be taken into consideration when analyzing their finances:

  1. Your current income. 
  2. Any financial obligations you may have.
    • This includes: your mortgage, any debt you may have, medical expenses, and bills
  3. What your future financial obligations will look like.
    • Are you planning on paying for college tuition for loved ones?
    • Do you have estate taxes that will need to be covered?
  4. Long-term care options. 
  5. Funeral expenses. 

Click here, to see how much life insurance you might need!

Along with this is knowing who will be receiving your life insurance policy once you pass, or your beneficiary. When you sit down to think about your family’s financial needs, you should also make a list of your primary beneficiaries and your contingent beneficiary. In some cases, you may need to consider a tertiary beneficiary.

What does this mean?

  • Your primary beneficiary is the first person who will receive your policy’s death benefit. Typically, this is the spouse of the individual who will be handling your finances. 
  • A contingent beneficiary is a person who is next to receive your benefit. For most people, this means children. 
  • Tertiary beneficiaries are individuals, like grandchildren, who you may want to receive your benefit. This is not required in all insurance policies. 

Most life insurance policies will allow you to allocate percentages of your policy to multiple people. For example, you may want your spouse to receive half of your death benefit, and your children to receive the rest. 

Not all life insurance policies should be looked at as a giant nest egg for your family, particularly for seniors who may find themselves on a budget and unable to pay the premiums associated with larger life insurance policies. Your agent can help you figure out the appropriate size of your policy, based on your financial needs and current budget. 

Pitfall #3: You Don’t Know Your Options

Although you may not think so, there are a number of options available for life insurance policies. 

While an agent is your best bet for finding the best life insurance option, you should be aware of what life insurance policies are available to you. Individuals can qualify for:

  • Term Life Insurance, which provides coverage at a fixed rate of payments for a limited period of time, is also known as the relevant term. These terms can last anywhere from 10 to 30 years, generally.
  • Guaranteed Universal Life Insurance, which is, essentially, a combination of term life insurance and permanent life insurance. This type of life insurance offers a guaranteed death benefit and, provided you pay the premiums to keep your policy active, this insurance can last your entire lifetime.
  • Whole Life Insurance provides a set amount of coverage for your entire life. These policies are typically more expensive because they build up “cash value” from part of the premium being invested.
  • Final Expense Insurance is a whole life insurance policy with a small death benefit. Seniors are attracted to this type of life insurance (also known as funeral insurance, simplified issue whole life insurance, or burial insurance) because it is often easier to get approval. 
  • Universal Life Insurance is a type of cash value life insurance in which you pay a monthly fee that is split into two parts: one to cover life insurance, and one which goes into savings and investment. The idea behind this is that it’s meant to be more flexible in that it allows you to choose how much premium you pay, within a certain range. 

Along with the types of insurance available to you, you should also have an idea of what insurance riders are available to you. A rider is an additional benefit that you can add to your life insurance policy. All too often, individuals apply for life insurance policies without considering how these policies can be fully customized. 

Some riders you may want to consider:

  1. Accelerated Death Benefit Rider, which allows you to accelerate part of your death benefit, should you be diagnosed with a qualifying critical, terminal, or chronic illness.
  2. Accidental Death Rider, in which your death benefit will increase – in some cases, double – if you die as the result of an accident.
  3. Waiver of Premium Rider, which allows you to waive your premiums in certain circumstances, for example, a disability.

Pitfall #4: Which Parties Are Part of Your Life Insurance Contract 

For seniors, especially, this is important to consider but everyone can benefit from knowing who is involved. Often, for seniors, multiple people will be involved in the purchase of your life insurance policy, and it’s important to know what role each person plays. 

There are three main parties with a life insurance contract:

The Policy Owner, or the person (or entity, in some cases) who owns and/or is responsible for making the premium payments on the contract.

The Insured, or the individual whose life is being insured.

The Beneficiary/Beneficiaries, or the recipient(s) of the death benefit.

At Noel Insurance, we believe that knowledge is power, especially for shopping for life insurance policies. Give us a call today, and let us help you review your coverage options.