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Rookie mistakes when buying life insurance

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Buying life insurance is a great way to protect your loved ones financially in case something were to happen to you. But whether you’ve already bought cover or not, there are a number of mistakes you should avoid to get the most out of your cover. Here are some errors people make when it comes to life insurance.

Not having enough cover

One of the biggest mistakes people make is not having enough life cover. If you fail to consider your family’s financial needs, or neglect factors like inflation and future expenses, your loved ones may be left financially vulnerable if you were to pass away.

Think about things like:

  • Everyday living costs
  • Mortgage or rent payments
  • Education expenses for your children
  • Outstanding debts, such as credit cards or loans
  • Funeral and burial costs

Waiting too long to buy

There’s plenty of reasons why people leave it late to buy cover. Some may think they are too young or healthy to need cover, while others may believe they can’t afford it. However, the reality is that the younger and healthier you are when you buy, the lower your premiums will be.

The longer you leave it, the higher the chances of developing health issues that could impact your eligibility or increase your premiums. It’s better to secure coverage early on when you are in good health and can lock in a lower rate.

Buying the cheapest policy

Another common mistake people make with their life insurance is choosing the cheapest policy available without considering the cover it provides. While it’s important to find a policy that fits within your budget, simply opting for the cheapest option may not provide you with adequate coverage for your needs.

Learn more: How much does life insurance cost?

Instead, carefully review the terms and conditions of each policy before making a decision. Ensure that the coverage amount, duration, and any additional benefits align with your financial goals and family’s needs. It may be worth paying slightly more for a policy that offers better coverage and peace of mind.

Relying solely on employer-provided coverage

While it’s great to have life insurance through your employer, it may not be enough to adequately protect your family. Employer-provided cover is often limited and may not be portable if you leave your job. Consider purchasing a policy of your own to supplement your employer’s coverage and provide more comprehensive protection.

Choosing the wrong type of policy

There are different types of life insurance policies available, such as term life insurance and whole life insurance.

Term life insurance provides cover for a specific period. Once you reach the end of the term, you will no longer have cover unless you renew or purchase a new policy.

There are 3 levels of cover – each of which can be useful in a range of situations:

  • Level term – provides a fixed amount of coverage for a specified period, with premiums that remain the same throughout the term.
  • Decreasing term – offers a decreasing amount of coverage over time, which may be suitable for those with decreasing financial obligations over the years.
  • Increasing term – cover increases over time to account for inflation and changing financial needs. However, premiums can also increase.

On the other hand, whole life insurance provides coverage for the rest of your life. The policy will pay out a lump sum regardless of when you pass away, as long as premiums are paid. This can be ideal if you’re looking for a long-term policy that can offer peace of mind for your loved ones.

Choosing the wrong type of policy can impact your financial goals and family’s needs. For example, if you want to cover a mortgage, a decreasing term policy may be more suitable than a level term or whole life policy. Consider your financial goals and family’s needs when selecting the type of policy that best aligns with your situation.

Not updating your beneficiaries

Life changes, such as marriage, divorce, the birth of a child, or the death of a loved one, can mean you need to update your policy. Failing to do so can result in your proceeds not going to the intended parties. Regularly review and update your beneficiaries to ensure your loved ones are properly protected.

Forgetting to review your cover

Life insurance is not a set-it-and-forget-it type of financial product. Your financial situation, goals, and needs can change over time, impacting your requirements.

Make sure you review your policy every so often to ensure it still meets your needs. This may involve increasing or decreasing cover amounts, or even switching to a different type of policy altogether.

If you’re ready to buy cover, don’t rush into things. Take the time to research and compare different policies before you apply. Think about why you are buying cover and what you want it to achieve for your family.

Photo by Kevin Delvecchio on Unsplash

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