Safeguarding our family’s future is something we should take very seriously. Life insurance is a fundamental aspect of financial planning, but if we make a mistake in purchasing, planning, and assessing our situation, it can lead to severe consequences. Today, we are going to talk about some of the common mistakes people make when purchasing a life insurance policy and how we can avoid them. If you aren’t clued up on life insurance policies, this article is for you.
1. Inaccurately Assessing Needs
A common mistake people make when purchasing life insurance is rushing into it without properly assessing their needs. When choosing your coverage amount, it should be decided upon several factors, such as your current income, daily living expenses, and other financial obligations. If this process isn’t carried out correctly, it can lead us to underestimate the amount our family will need in the event of our passing.
How to Avoid – When taking out a policy, calculate absolutely everything. This includes debts, mortgage payments, business obligations, living expenses, utilities, future education costs, and anything else. On average, a life insurance policy should roughly cover ten to twelve times your annual income.
2. Making A Quick Decision
Like many investments, quick decisions can lead us to pay for things we don’t necessarily need. Additionally, rushing can cause us to misunderstand our policy and miss out on better opportunities.
How to Avoid – It is essential to take your time, weigh up your options, and don’t purchase anything you don’t fully understand. If a life insurance policy is a little complicated, you can seek the help of an insurance broker who will be able to explain everything.
3. Ignoring Policy Riders
Riders can serve as a brilliant tool, allowing your policy to do much more. They are additional features, often merging two or more policies to create a comprehensive and consolidated insurance solution. When taking out life insurance, people overlook riders and take out multiple policies, costing them much more in the long run.
How to Avoid – The best thing to do is enquire about riders and consolidate insurance policies before purchasing them.
4. Understanding Health Premiums
The premiums we pay for life insurance relate to our overall health, age, occupation, and lifestyle. Many don’t realise how much this can impact the overall price of insurance, so ignoring it can be costly.
How to Avoid – To take advantage of health premiums, it is much better to invest in a life insurance policy earlier rather than later. Additionally, monitoring your health and adjusting your lifestyle can give you much better premiums.
5. Not Evaluating Policies
Once people purchase a life insurance policy, they often ignore it, paying monthly premiums and leaving themselves in a false sense of security. As our lives begin to develop, starting businesses, buying homes, getting married, and having children, our financial obligations increase. Essentially, a life insurance policy that would have been great ten years ago will struggle to suffice in today’s climate.
How to Avoid – Every six to twelve months, we should assess our financial obligations and review our life insurance policy, along with any other policies we have. This will ensure your policy always meets the needs of your family. Additionally, when reviewing a life insurance policy, check for exclusions that could hinder the payout and adjust them accordingly. When taking out a policy, it is crucial to go for something flexible that can be amended at any point. Without this, it is likely to become outdated over time.
Final Thoughts
Purchasing life insurance is an essential part of successful financial planning, but without careful consideration, it is possible to make mistakes. Following these steps and talking with an insurance broker is the best way to give you the peace of mind a life insurance policy should provide.