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The Most Common Life Insurance Purchase Mistakes

The Most Common Life Insurance Purchase Mistakes
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Monday, 21 August 2017 06:11 PM Current | Bio | Archive

The purchase of life insurance can be one of the most important financial investments that a person makes in their life. Considering that, any mistake made when purchasing life insurance could turn into the largest financial mistake they make in their life. Life insurance should give you peace of mind, so nothing should be left to chance when purchasing it. Below are some of the most common mistakes made when purchasing life insurance, and how to avoid them.

Not Buying the Right Amount

The mistake that plagues life insurance purchasers who made their purchase on a whim or without proper research is purchasing the wrong amount of life insurance, either too little or too much. This can happen for two reasons. One, they do not know what their true insurance needs are or, two, they use the wrong approach to calculate their insurance needs. The former usually happens because they work with an inexperienced agent or purchase their insurance from an automated quotes system. The latter usually happens when someone uses general rules like “buy X times more than your annual income.”  Either way, these are not advisable ways to purchase life insurance. Rather, one should meticulously calculate their life insurance need, so they know they aren’t under- or over-insured. For an in-depth guide on how to calculate your life insurance needs, see my article "How Much Life Insurance Should I Buy and Why?" from last month.

Not Buying the Right Policy

With literally hundreds of life insurance products out there, searching for a life insurance policy can be overwhelming. You either have no idea where to start or you’re offered a narrow set of products from an agent who can only sell his or her company’s policies. You may not know about the differences, big and small, between term life insurance and whole life insurance.

Term life insurance is a good option if you’re purely trying to cover your dependent’s needs while they are reliant on you. You expect that within the next 10, 20, or 30 years your family will be able to provide for themselves either through employment or a sufficient amount of expendable capital. Conversely, whole life policies, if structured correctly, cover you for life. Often, they are used for issues more complex than simple income replacement. Whole life insurance is a critical estate and business planning tool that can efficiently transfer assets or cover business risks. For a more in-depth guide on when to purchase whole life insurance, see my article "When to Buy Whole Life Insurance Instead of Term" from earlier this month.

Not Buying It for the Right Reasons

When purchasing life insurance, people are immediately thinking about their financial responsibilities.  Debt, education, income replacement, business planning, final expenses etc., but often they are only looking at their purchase from their own perspective. The most likely benefactors of your life insurance policy are your loved ones, so it’s important to look at it from their point of view. For them, it provides financial stability during the most emotionally turbulent time in their lives. It’s a final gift that truly gives your loved ones peace of mind that their needs will be met, allowing them to be financially solvent despite their loss. It’s usually a purchase for the family, and family should be a prime point of concern when purchasing life insurance.

When you do finally make the decision that it’s time to purchase a life insurance policy, it’s important to do your homework so you can avoid buyer’s remorse on such an important financial product. It’s always advisable to find an experienced agent that truly understands how life insurance can benefit you, from replacing income to estate and business planning.

Richard S. Bernstein, CEO of Richard S. Bernstein & Associates, Inc., West Palm Beach, is an insurance advisor for high net worth business leaders, families, businesses, municipalities, and charitable organizations. An insurance advisor to many of America’s wealthiest families, he is a writer, trusted local and national media resource and expert speaker on estate planning and health insurance. Visit his website at www.rbernstein.com. To read more of his reports — Click Here Now.

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The purchase of life insurance can be one of the most important financial investments that a person makes in their life.
life insurance, common mistakes, whole life insurance, term life insurance
694
2017-11-21
Monday, 21 August 2017 06:11 PM
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