And how to avoid making them!
Published January 2021
Buying life insurance is an important step in helping to financially protect your family against unexpected events. But like anything important, if you don’t know what to avoid, it’s easy to make a mistake or two along the path to protection. Don’t worry. Knowing some of the common life insurance mistakes that others make can help you avoid making them too. Here’s our ‘hit list’ of the top 10 life insurance mistakes to avoid!
1. Buying the wrong term
If you buy a 5-year plan, your rates will go up when you renew, i.e. in 5 years. If you buy a longer term, such as a 10- or 20-year plan, your rates are locked in and won’t increase for 10 or 20 years, which can save you money. Longer term = longer period of time at a lower rate. You want that!
2. Being underinsured
One of the reasons term life insurance is so popular is because it’s so affordable, especially while you are younger and have access to the best rates. Go for as much coverage as you can comfortably afford while your rates are at their lowest. Some experts recommend an amount equal to 7 to 10 times your salary to replace lost income.1
3. Putting it off
If you’re putting off getting life insurance due to other financial obligations, here’s a solution: buy what you can afford now, and top it up later. Easy peasy. Don’t procrastinate; because being prepared is not only important for you, but for your loved ones as well.2
4. Missing out on volume discounts
Most insurance companies offer volume discounts, but not everybody knows about them. With volume discounts you might find out, for example, that $300,000 of coverage costs less than $250,000. Or that $500,000 in coverage doesn’t cost double what $250,000 does. You’ll want to take advantage of that!2
5. Not reviewing your coverage every year
Here’s the thing with life. It’s constantly changing, never stands still! Your insurance needs to keep up with that. If you added a baby or have a new spouse, chances are your policy needs updating. Make a point of making sure your coverage is up to date every year. Just put it in your calendar and do it.
6. Cancellation regret
Sometimes financial things come up and you may be tempted to cancel your insurance. Resist the urge! It’s a lot easier to get insurance in the first place than to get it back. If you cancelled and the unexpected happened, your family would be left without that coverage, so stick with it.
7. Forgetting to disclose PECs
On a ‘bad ideas’ scale of 1 to 10, failing to tell an insurance company about pre-existing conditions like heart disease, diabetes or previous surgeries is an 11. Just don’t do it. It could result in non-payment of a benefit to your loved ones in their time of need. It also identifies you as a person who has lied on an application.2
8. Buying a specialty insurance plan instead
Specialty plans, like mortgage insurance or accidental death insurance are one-trick ponies. The payout can only be used for that one thing, i.e. making mortgage payments, or paying a benefit in the event of accidental death (which excludes other more likely health related issues). Specialty plans may look good on the surface, but lack the flexibility of term life insurance which offers your family a lump-sum payment that can be used any way they want.
9. Not knowing where you’re NOT covered
Life insurance policies often won’t cover you in countries where the risks are unusually high. Think natural disasters, epidemics, war or civil unrest. It pays to know where you’re covered before you travel there.
10. Monthly vs. annual payments
You may think there’s little to no difference in terms of cost savings when you pay your life insurance premium annually vs. monthly. But you would be wrong! When you pay your insurer once a year vs. 12 times, that decreases their administrative costs which they in turn can pass along to you in the form of savings.
So, there’s your top 10 hit list of things to avoid when you shop for life insurance! Good luck, happy shopping and happy protecting!