Mistakes to Avoid When Buying Life Insurance

Life insurance is important, as it protects your family when you are not able to do so. Once you understand the importance of life insurance you need to make the right choice as purchasing life insurance is one of the most important financial decisions you’ll make. Buying life insurance is a very important part of your financial plan and shouldn’t be rushed in order to avoid any mistakes. Here is a list of the common mistakes people make and how to avoid them.

• 1. Waiting Too Long To Buy

The biggest mistake people make when it comes to buying life insurance is waiting too long to buy a policy. Every year you get older and the more you delay the more you will have to pay because your age and health affect the rate you pay for life insurance. That’s why it’s always advisable to buy life insurance sooner, rather than later to get the lowest possible rates. The younger you are when you buy life insurance, the more affordable it will be.

• 2. Buying Without Research

Buying life insurance is not as exciting as buying a new smartphone or a luxury car, but it is the most important decision you will ever make for your family’s financial future. That’s why it’s even more important to do your homework and research and shop around for the best policy and rates before you buy your life insurance policy.

Life insurance product pricing varies widely among various providers depending on the features and benefits of the products offered. Also as there are many complicated and different types of insurance plans with different features and benefits; it’s always advisable to consult with a knowledgeable insurance broker that can help you determine the best option as per your unique needs and budget. You should ask your insurance advisor to give you quotes from at least three companies and for different coverage amounts. As Insurance brokers work with several companies they can help you compare a variety of life insurance products to find the best rate and policy for you.

• 3. Relying Only On Your Group Insurance

Life Insurance offered through group plans at work is not adequate in most cases. These employer plans only offer a basic amount of term life insurance which may not be enough protection to meet the needs of your specific family situation. Moreover these policies are not portable and as soon as you leave your job you will lose coverage. That’s why it’s advisable to buy your own individual life insurance policy in addition to the group plan to make sure that you are fully covered.

• 4. Thinking It's Too Expensive and You Can't Afford It

One of the main reasons people don’t have life insurance is because they assume that it is too expensive. Many people with no life insurance keep putting off buying life insurance thinking that it will be too expensive and they can’t afford it. But life insurance is way more affordable than you think. You may be surprised to know that for a millennial basic term life insurance policy can cost less than a cup of coffee a day. A Term-10 life insurance policy for a coverage of $250,000 for a 36 years old healthy non-smoker male could cost as little as $15.70 per month or $167.50 per annum and for a 36 years old healthy non-smoker female it could cost $11.93 per month or $132.50 per annum.

• 5. Assuming You Are Uninsurable Due To Health Issues

Sometimes people with past or existing health issues assume that they are not eligible to buy life insurance which is not true. Each life insurance company has their own underwriting guidelines and may view your health issue differently. An experienced and knowledgeable insurance advisor will usually know which companies likely offer better rates for any health issues you might have and can help you get coverage from the right company. There are options available like no medical life insurance and simplified issue life insurance where you can get coverage even with your pre-existing health conditions.

• 6. Buying the Cheapest Policy

Don’t always look for the cheapest policy because you get what you pay for. Many people will just focus on the premiums while shopping around for life insurance but keep in mind that the price shouldn’t be the only factor you consider. While it is important to shop for an affordable policy that fits your budget, it’s also equally important to consider what you’re getting in return, in terms of coverage. Life insurance policies can be very complex, that’s why it’s always advisable to consider their features and benefits along with the price. For example, term life insurance is cheaper than permanent life insurance because it will only cover you for a certain period of time while permanent life insurance will provide lifetime coverage along with an investment feature that will accumulate cash values inside it.

• 7. Buying the Wrong Type of Insurance

The biggest mistake people make when buying life insurance is not understanding what they are buying and buying the wrong type of insurance. Always understand what type of policy you need. Be sure to ask a lot of questions before buying a policy. Make sure you understand what you are buying. Whether term or permanent life insurance is better for you will depend on your own personal needs and financial goals.

When buying life insurance make sure you know what type of life insurance you need, what it will cover and what it will not cover and for how long it will it over you. Here comes the role of an experienced and knowledgeable insurance advisor who can assess your needs through need analysis and can help you get the right type of insurance policy and the coverage you need. For example your term life insurance policy will not cover you for your whole life and will expire after a specified term. If you want coverage for your whole life you need to buy a permanent life policy.

• 8. Buying The Wrong Term

Buying a Term-10 life insurance policy may look budget friendly and tempting when compared to Term 20 policy premiums but in the long run you will end up paying more. Because a Term-10 policy will cover you only for 10 years and after 10 years at renewal time premiums will jump drastically. So always buy the right term or term longer than your need to make sure that you are fully covered.

• 9. Buying Too Less and Under Insuring Yourself

When it comes to buying life insurance most people are often underinsured. Canadian life insurance statistics reveal that 49% of Canadians with dependents have never purchased life insurance. On top of that, many of those who do have insurance were underinsured. So always figure out how much life insurance coverage you need before you buy.

There are many factors that will decide the amount of coverage. One rule of thumb is to have a policy with a death benefit equal to 10 times your annual salary. Your Insurance Advisor can help you figure out the amount of coverage needed after doing a need analysis. You can use our Life Insurance Calculator to calculate how much life insurance you need.

• 10. Lying On Your Application

Make sure you answer all the questions asked on the application honestly about your health, family medical history, driving record, your financial history, occupation and your hobbies. Never try to provide misleading information on your life insurance application because the insurance company will deny the future life insurance claim if it is discovered that you have lied on an application.

• 11. Not Reviewing Your Coverage Annually

Your life insurance needs will change over time, and so should your coverage. It is advisable to review your life insurance policy periodically. If you have a major life change, you should contact your insurance advisor as this change in your life may have a significant impact on your insurance needs. Life events such as marriage or divorce, having children, or buying a new home play an important role in determining how much life insurance coverage you need and should trigger a review of your life insurance coverage. Reviewing your life insurance every year helps make sure your policies are up to date and still meets your needs and that additional coverage is added if needed.

• 12. Not Insuring A Stay At Home Parent

When it comes to buying life insurance there is a common misconception that only the primary breadwinner in the household needs life insurance. Although stay-at-home parents don’t bring a paycheque, they provide enormous support in maintaining a home and caring for children and elderly parents. That’s why they have a lot of financial value that should be taken into consideration while buying life insurance. In case of untimely demise of a stay-at-home parent, life insurance protects the spouse and child against any financial burden.

• 13. Not Updating Beneficiaries Designations

When you experience a major life change such as birth, marriage, divorce, and death, it’s important to review your beneficiary information, and change it to reflect your wishes. You should select both primary and contingent beneficiaries. Contingent beneficiaries will inherit if the primary beneficiaries precede you in death. No one likes to think about what would happen to their assets in the event of their untimely death, but it’s important to do so for the sake of your family and your own wishes. Without living beneficiaries, the proceeds will go to your estate which may be subject to probate, and your family may have to wait longer to get the funds from the life insurance claim.

If beneficiaries are not regularly updated, accounts could end up in the wrong hands. Naming and updating your beneficiaries will help to make sure your money goes to the people you choose. For example if you’ve had a second child, and you forgot to add him to the beneficiary list the inheritance may not split evenly among your children as desired. Maybe you’ve been through a divorce and your ex-spouse is still listed as a beneficiary, as a result, the ex-spouse inherits your accounts instead of your current spouse. So it is very important to regularly review your beneficiary designations. You should also inform your beneficiaries about the details of the insurance plan, where you stored the policy, how to contact your insurance advisor or company and how to make a claim.

• 14. Cancelling your policies

If you cancel your life insurance policy now, you will have to buy a new one in the future. This means that in future when you buy a life insurance policy, it is more likely that you would be paying a higher premium than today, due to increased insurance premiums, inflation, increasing age, etc. Moreover, you also would have to go through the entire process and medical examination and any significant changes in your health could have a big impact on your ability to qualify for life insurance. Cancelling a life insurance policy is very easy but buying again is not going to be easy.

• 15. Not Benefiting from Annual Payment Option

You should keep in mind that paying premiums monthly may look more convenient and budget friendly but making annual payments may save you a lot. Your insurance rates can be lower if paid annually and you could save as high as 8% as annual payments save insurers administrative costs and you get rewarded with lower premiums.