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Life insurance is an often overlooked but incredibly important investment that anyone with assets and beneficiaries should investigate. Although it can be unpleasant to think about your death, planning ahead today can give you peace of mind, knowing that your family will be financially secure if the worst were to happen tomorrow.
The problem is that not all life insurance policies are created equal and, if you're unfamiliar with the available options, choosing the right one can be daunting. It's crucial to educate yourself on life insurance products and understand what's best for you and your family in the long run.
Below, seven members of Forbes Finance Council outline some of the most common mistakes people make when purchasing life insurance and how to avoid these errors.
1. Going With The First Agency You Find
Take time to talk with a few agents. Yes, it's nice to save a buck, and you want to get it done, but the driving factors should be confidence in knowing your family is going to get the proceeds and choosing a company that best fits your objectives. Take your time to understand your options so you aren't stuck with expensive regrets. If an agent doesn't understand that, keep shopping. - Drew Gurley, Redbird Advisors
2. Making A Decision Without Proper Help
If you make your decision in a vacuum or with the aid of someone who is motivated to sell one type of product only, you stand the risk of making a choice between options that don't serve you optimally. You need to know that term plans differ by carrier -- not only by price, but also in terms of what and how they cover you. By understanding these items, you can make a much better decision. - William Kohn, Florida Health Agency.
3. Incorrect Ownership And Beneficiary Setup
The top error I see when people purchase life insurance is that they're not properly setting up ownership or arranging beneficiary status. To avoid making these common mistakes, make sure you name a primary beneficiary and a backup or contingent beneficiary. Most people don't change beneficiaries when a life event happens like death or divorce. Pay careful attention to details. - David Kleinhandler, VEST Financial Group, Inc.
4. Purchasing Life Insurance Without A Clear Plan
The biggest mistake individuals make with life insurance policies is they are either under-insured, which potentially can open them and their families to financial disaster, or they are over-insured, in which case extra funds used to buy insurance could leave their retirement and other investments underfunded. Define your goals, determine your risk and implement your plan. - Alexander Koury, Values Quest
5. Failing To Understand Your Options
There’s a slew of life insurance plans out there, and they are not all created equal. Annuities, for example, are often presented as life insurance, but generally speaking, they do very little for the client other than generating a handsome commission for a financial advisor. Make sure you understand all of the terms, the cost, the benefits and what it would cost you to sell or cancel the plan. - Shane Hurley, RedFynn Technologies
6. Not Looking Far Enough Ahead When Purchasing
Most people purchase life insurance with the next 15 years in mind. The more prudent thing to do is purchase with the next 30 years in mind. Make sure your spouse, children and loved ones are covered in the event something unfortunate happens to you. Consider whole/universal life versus a term policy. Consider term policies that allow you to convert into a whole/universal life policy as well. - Jared Weitz, United Capital Source
7. Waiting Too Long To Buy
The single biggest mistake people make when purchasing life insurance is thinking they buy it with their money. You buy life insurance with your age and health. The longer you wait, the more you will pay for the same thing. - David Haass, Elite Insurance Partners, LLC
Forbes Finance Council is an invitation-only, fee-based organization for executives in successful accounting, financial planning and wealth management firms.
Source: Forbes
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