Let’s talk about life insurance. I know it’s not the sexiest topic and some people like to avoid it at all costs, but it’s super important. There’s also a ton of myths and misconceptions surrounding insurance and once those are debunked, I know people will feel more confident talking about insurance and asking questions.
Quite frankly, I’m tired of seeing people place more emphasis on their car than they do their own life. Sure, it’s important to insure your car but YOU are the most important asset controlling said car. Some people feel that life insurance is black or white and there’s not much to know but that couldn’t be further from the truth.
When you make some of the life insurance mistakes I’m about to go over, you put yourself and your family in a tough position and you miss out on some of the most important benefits of having proper insurance.
Let’s get into the 7 most common life insurance mistakes you need to stop making.
1. Thinking Insurance is Too Expensive
Life insurance can be extremely cheap. This is why I don’t understand people avoiding the idea of getting insured because they believe it’s going to cost them an arm and a leg.
There are different levels of coverage. One of my first life insurance policies in my 20s was for just $15 per month for about $100,000 of coverage. This was a term policy which is cheaper, but it’s still something that can probably fit into everyone’s budget.
Whole life policies are more expensive but they also come with a boatload of extra benefits. When you’re younger, coverage is often cheaper but that’s not always the case. It depends on your health and the type of policy you want.
I can name a thousand $25 – $75 monthly expenses people somehow manage to make room for so if you truly look in your budget and prioritize getting insured, you’ll find it’s not that expensive at all and it’s for a worthy cause.
2. Not Buying Life Insurance When You Need It
There’s no better time to consider getting life insurance than today. You’re alive, you’re reading this, and if you consider yourself a fairly healthy person, you’ll want to lock in a policy ASAP. Why? Well, there’s no better time than the present, but on a more serious note, I’m tired of hearing stories from people who missed their chance.
Someone I know kept talking about getting life insurance for their daughter but they put it on the back burner due to being busy with life events like graduations, moving, etc. A freak accident occurred and their daughter got into a car accident and died on the scene before she could make it to college and sadly before her parents could get a policy on her.
Another young guy who’s a friend of a friend was wise enough to get some insurance coverage. A few months after he did, he was diagnosed with a rare form of cancer and had the option to fly to Europe to receive treatment from a specialist. He tapped into his life insurance policy to help pay for the care that ended up saving his life (more on how to do that later).
People put off getting life insurance like tomorrow is promised. Being young and in good health today does not make you invincible – although I wish it did. It’s sad to see Go Fund Me pages when families could have gotten a $25/month life insurance policy and had the peace of mind that protection can provide.
If you’re married, have kids, assets, or private student loans, you should definitely consider getting life insurance to protect yourself and your loved ones.
If you’re young, single, and living in mom’s basement, you may feel your insurable need isn’t that high. Think about how your passing might affect your family emotionally and mentally. I know my mom probably wouldn’t be able to bring herself to work for a long time if she ever lost one of her kids. This would put her in a tough financial place with her bills. Also, funeral costs would be a burden. A $100,000 term policy for $20/month could make a huge difference.
My husband’s coworker lost her mom unfortunately last year. She was back to work within a few days and it was sad because everyone could tell she didn’t want to be there but had no option to take the time off to fully grieve.
3. Not Understanding Your Insurable Need
What’s the right amount of life insurance coverage? $250,000 or $2 million? A good life insurance agent will determine your insurable need before setting you up with a policy.
It makes no sense to be under or over insured. There’s a common rule of thumb that says you’ll want to have coverage that equals 10x your annual salary. If you make $50,000 a year, that would mean $500,000 of life insurance coverage.
Determining your insurable need is not always that simple though. A good agent will look at your assets, income, lifestyle, and budget.
If you have kids, a mortgage, student loans, etc. all of that will be factored in. Plus, your net worth should be considered along with your budgeted amount to comfortably afford a monthly premium.
When you truly understand your insurable need, life insurance will be a justified cost that you understand and it won’t be a strain on your budget.
4. Failing to Understand and Obtain Living Benefits
Did you know that life insurance isn’t just all about your family being protected when you pass away? Having the right type of policy can actually benefit you right now.
If your policy has living benefits, you’ll be able to accelerate the payout of your benefit amount if you become terminally ill or disabled. This is something I wanted to make sure my mom had on her life insurance policy.
It’s called a Living Benefits Rider (LBR) and in some cases, it can allow you to use up to 75% of your death benefit while you’re still alive. For example, if you have a $300,000 life insurance policy, you can use up to $225,000 while you’re still around to pay medical bills, keep you comfortable, or even provide income replacement.
Did I mention that in most cases, the benefits are not taxable as well? (Learn more here). However, you’ll want to check with your tax professional to verify any other tax implications as state rules vary.
LBR can be added to a term or whole policy in most cases and I’d highly recommend it. The coverage and terms vary from state to state but if you have any questions you can always reach out to me at any time.
5. Not Checking Your Policies Every 2-3 Years *Tisk Tisk*
Say you have a policy, but you just let it sit year after year. You could be making a huge mistake. As your life changes, you need to check on your policy every few years and make updates.
You may need to add kids as you grow your family or your kids mature into adulthood. If you get married, you may want to add your spouse. An overwhelming number of policies are payable to ex-spouses or others whom the insured didn’t want to receive the policy benefits all because they didn’t take a few minutes to update or change their policy.
Don’t make this simple but costly mistake.
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6. Thinking Your Employer’s Coverage is Enough
If I had a dollar for all the times I heard people say that their employer provides life insurance for them and “they’re good”, I’d probably be rich.
It’s unfortunate that people fail to fully investigate the benefits their employer offers them. They don’t know what their health insurance deductible is through their employer, they don’t know the fees for their employer-sponsored 401(k) or what they’re even investing in, and they don’t know how much life insurance coverage their job has for them.
Being completely unaware and oblivious is a dangerous place to be in.
What most fail to realize is that many businesses participate in a group life insurance plan that only provides basic coverage for employees. If you pass away while employed with the company, your beneficiary (usually your spouse or kids) will receive a death benefit usually equal to your annual salary.
In an unfortunate event of your passing, it would be very unlikely that a years’ salary would be enough to help your family sustain their lifestyle and provide care and comfort for them long-term.
Plus, if you leave your job, do you think you’re still going to have life insurance? That’s a no. Most millennials are not staying with an employer for more than 2-3 years.
This is why it’s wise to get your own coverage in addition to what your employer may offer. Just like it’s okay to have two bank accounts or two credit cards, it’s perfectly fine to have two or more life insurance policies.
7. Not Understanding How to Use Life Insurance as a Retirement Tool
One of my favorite things about life insurance is how you can use it as a savings vehicle and retirement tool. Everyone is always ranting and raving about 401(k)s and 529 plans but the true wealth builder is life insurance.
As I stated earlier, there are many types of options for plans and you can choose a policy that allows you to invest in your kid’s college, stash money away for retirement, or even hit a short to mid-term savings goal by getting all your premium payments returned to you after your term policy is up.
The best thing about life insurance is the tax shields making it difficult for Uncle Sam to get his grubby hands on your money.
I can get into this more in a future post, but if you can’t wait for the deets, you can always email me or reach out to me in the My Debt Epiphany Facebook group with questions.
Take the Next Step
If you feel like you’ve been making any of these common life insurance mistakes, I hope you act with urgency to start fixing them. It’s never too late to learn or see the error in your ways.
I’ve learned a ton myself this past year as I became a licensed life insurance agent after developing a passion to help people protect themselves and their loved ones.
If your ready to get your life insurance plan in order, Bestow is well worth looking into. The company has changed the way life insurance is applied for and they’ve removed common roadblocks for getting proper coverage. Using data and tech to moderize the process, Bestow has found a way to cut out the middle man, high fees and hassle most people deal with when buying life insurance. Also, they have amazing plans starting as low as $5/month and offer amazing 2 year terms for ultimate flexibility. Get a quote in seconds here.
Have you ever made any of these life insurance mistakes? What are you doing to fix them?
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