The 5 Biggest Mistakes You Can Make with Life Insurance Policies & How to Avoid Them

Life insurance is your shield against unexpected (or eventual) loss and hardship. It is rather like placing a monthly or annual bet where only the survivors “win.” The proceeds, type, and timeframe of the insurance need to be tailored to individual and family needs. Having too much insurance could cost thousands in the long term. And the implications of having none or not enough are obvious.

Here are the 5 biggest mistakes families make with life insurance policies and ways to avoid.

Mistake 1: Inadequate Insurance Amount

Many widows go through their late spouse’s death benefits within just a few months. Death benefits should be ample enough to cover cost of living for beneficiaries throughout the years of their need and expectation from insured individual’s income. Ask yourself if you or your loved ones can stretch your insurance proceeds to pay debts and just go on living. If you cannot answer that, or the answer is no, you may need to revisit your current policy and adjust as necessary.

Avoid by: Get an unbiased, no-nonsense analysis of your current insurance needs. A good financial planner can help you with determining adequate coverage and update your insurance coverage to meet family needs.

Mistake 2: Term Insurance Has Matured or Has Become Too Expensive

From a 1993 Penn State University study, researched revealed that about 99% of term insurance policies did not pay out a death benefit. This was due from policy lapse or the insured outliving the term contract. With life expectancy age increasing over the past three decades, this statistic still holds merit. 

If you have carried a term insurance policy, you are more than likely paying low premiums for higher death benefit coverage than, say, a permanent whole life policy. If your objective is simply to have the security of a big payout if you die prematurely, this may meet your short-term needs. But as you age, however, those premiums get higher upon a renewal of term, or the policy payout gets lower.

Relying on term insurance is the equivalent to renting a home. You gain no equity in your account. It may be worth purchasing for a short duration, but the longer you live, the more the insurance company profits

Avoid by: Find a good insurance professional that should be able to help determine the necessity, and a reasonable premium and duration for a term policy. Also consider buying insurance policies where your premiums build an equity as well as provide your insurance safety net. There are many life insurance products on the market that build cash value equity instead of pumping monthly payments down the drain. Get some advice from an insurance expert and tailor your portfolio accordingly.

Mistake 3: You Bought Life Insurance Before You Needed It

A single person with no dependents needs only enough insurance to cover burial costs. Even though life insurance is cheaper for the young, buying big coverage earlier in life could be costly and a waste of good money. 

Avoid by: A wise approach for a young person is to wait to buy life insurance when he or she is no longer single and a dependent would suffer financially if they die. Again, just get the minimum to pay funeral expenses so as not to be a burden on your family. If insurance is purchased outside of these conditions, a low death benefit permanent policy would be cost effective in long run.

Mistake 4: Purchasing Life Insurance From Many Sources

Banks offer mortgage life insurance. Airlines, car rental companies, and even creditors offer life policies in case you are not around to pay the mortgage or personal loans, or if you die in an air crash or need to pay other expenses. Those policies are hugely profitable to the providers, and the insured rarely collect on them. Be careful and diligent to review the terms, conditions, and insurance ratings of carriers providing insurance.

Avoid by: If you already have adequate life and casualty insurance, don’t bother with expensive products from other sources. The action is to only buy life insurance from a reputable and well rated insurance carrier.

Mistake 5: Neglecting to Review or Update Your Life Insurance Policy

The time to review your life insurance coverage is not right after a tragic event. Many life changes require another insurance review. Has health conditions changed that could lower premium on term? Are the beneficiaries current? Do you have contingent beneficiaries?

Avoid by: Generally, it is a good idea to review and/or update your insurance policy every three years. This especially important if you rely solely on term insurance with time limits that could lapse. You could encounter gaps in coverage that in some cases affect the term of the policy.

How Old Middies Can Help

As you embark on the exciting journey of retirement planning, envision a future where your legacy is not only protected but strategically enhanced and provides generational wealth. This is where we come into play, seamlessly incorporating life insurance into your retirement strategy. Beyond the typical scope of coverage, life insurance can be a dynamic tool, offering a unique blend of protection and growth potential – all carefully curated to maximize the benefits for you and your loved ones.

Old Middies understands that life insurance is not just a safety net; it is an integral component of a comprehensive retirement plan. Picture a retirement where your financial legacy is strategically leveraged to create lasting impact, whether it's providing for your family, funding a child's education, or leaving a charitable legacy. With our personalized approach, we analyze your unique financial situation to tailor life insurance solutions that align seamlessly with your retirement goals and aspirations.

Why leave the legacy you've built over a lifetime to chance? Our dedicated team is committed to optimizing life insurance as a powerful tool in your retirement arsenal. You will gain access to a wealth of knowledge, strategic planning, and a roadmap to a financially secure and impactful retirement. Let us help you navigate the intricacies of life insurance and retirement planning, so you can enjoy the peace of mind that comes from knowing your legacy is in expert hands. Secure your financial future and leave a lasting impact with the guidance of our experienced financial advisors.

Contact us today at 619-836-2218 or michael@oldmiddies.com