1. Procrastinating
If you need life insurance, it’s better to buy sooner rather than later. Life insurance rates increase as you age and develop health conditions, such as high blood pressure and diabetes.
2. Choosing the wrong type of life insurance policy
Term life insurance, which covers you for a certain number of years, is sufficient for most people who need life insurance, and it’s cheap. Permanent life insurance, such as whole or universal life, covers you for your entire life and features an investment component called cash value. The cash value accumulates gradually. You can borrow from the cash value or surrender the policy for the money.
3. Relying only on group life insurance
Group life insurance is a nice employee benefit. The amount of coverage is typically one to two times annual salary. In many instances, the coverage ends when you leave the company.
4. Naming a minor as a beneficiary
You might buy the policy for your children’s benefit, but naming them as beneficiaries on the policy when they’re still minors is a bad idea. If you die before they’ve reached legal adulthood, the life insurance company can’t pay benefits until the court appoints a guardian. That takes time and money for attorney fees and court costs.
Instead, name your spouse or other trusted adult as the beneficiary. Or set up a life insurance trust for your children, and name the trust and trustee as the beneficiary on your life insurance policy. You can stipulate how the money should be used.
5. Keeping your life insurance policy a secret
Some people don’t like to talk about their personal finances, even with close family members. But somebody needs to know about the life insurance policy, so the beneficiary can make a claim. Besides a spouse or adult children, here are people with a good reason to know about your policy: a financial advisor, an estate planning attorney and anyone you appoint in your will as the personal representative or executor of your estate.
6. Forgetting to update beneficiary designations
Financial advisors recommend that you review your policies every few years to make sure they provide enough protection, and that you update beneficiaries if necessary. Make sure you review coverage after major life events, such as marriage, divorce, remarriage and having a baby.
Call MichiganTerm LLC. today at 888-242-9644 for a complementary policy review!
