Many working Americans are prepared for retirement but seldom do they think about taking out a life insurance policy. Some may not see the importance while others simply did but let their policy lapse. Having life insurance is a great asset for all families. Yet it is not deemed a requirement to have alongside other investments and insurance policies. There are many individuals who are uneducated about taking out a policy. Thus, they make costly mistakes. Here are five big mistakes people might make when they sign up for life insurance.
Five big life insurance mistakes to avoid
Mistake #1: Underestimating the need for life insurance.
A lot of people commonly make a mistake regarding how much life insurance they actually need. When people sign up for a plan, they usually purchase too little to cover the costs attributed to their family.
Solution? Individuals with families should research the amount of life insurance they actually need. There are many online calculators that can help them make the correct calculations, provided they do a little web research.
Mistake #2: Undervaluing non-working spouses.
Many households also depend on the non-working spouse, especially if the other spouse is working. Some households may lose at least $100,000 per year to replace the non-working spouse in terms of insurance coverage.
Solution? Insurance policy holders need to correctly valuate their spouses on their insurance policy. In a household, both working and non-working spouse are critical to keeping that same household in shape.
Mistake #3: Buying life insurance policy with increasing premiums.
This mistake is so common that it’s mostly responsible for the amount of people who end up dropping their insurance policy after less than two years. These ‘ever-rising premiums’ don’t start rising after a certain time, usually forcing a policy holder off their plan due to rising costs.
Solution? Policyholders should always research their plan before committing to a contract. It’s best to discuss certain plans with insurers before selecting one.
Mistake #4: Failing to sufficiently review all the types of available life insurance plans.
Many people forget to actually read through and completely understand the terms of their life insurance plans. When this happens, they’re usually subject to receiving increasing premiums or undervaluing beneficiaries. They also lose out on a lot of money.
Solution? Prospective policy holders need to research and review their plans before committing. Not only will they select the right and/or appropriate plan, they’ll also save money in the long run.
Mistake #5: Treating the purchase of life insurance as a ‘one time activity.’
Staying committed to a life insurance plan is actually an ongoing process, instead of the one-time purchase that a lot of people assume. People who purchase plans decades earlier need to review their insurance plan to avoid paying extraneous costs, ensuring they get the most out of their life insurance.
Solution? Policy holders should always talk to their insurers and review their insurance plans every few years. It’s especially important to review a life insurance plan when major life changes occur.