Introduction
The decision to buy life insurance is an important one. It can ensure that those who rely on you for financial support will receive money when you die. But knowing what’s right – or wrong – when it comes to life insurance can feel overwhelming. That’s where an advisor can help.
Sun Life advisor Raj Daryanani shares life insurance advice – and 7 common mistakes to avoid when it comes to life insurance.
1. Relying only on group insurance
Having life insurance through your employee benefits package at work is great, says Raj. “But most employer plans offer only a basic amount and type of life insurance. And it’s available only as long as you work there. So, if you change jobs, quit or get laid off, you’ll no longer have that coverage. That’s why it’s important to have your own life insurance that you control. You can still have your group insurance. Just consider it icing on the cake."
2. Choosing the least expensive life insurance option, instead of the best option
There are two main types of life insurance. Each has features to meet different needs:
- Temporary coverage
- Lower cost in the beginning
- Fixed payments
- Option to convert to permanent
- Example: Term life insurance
- Lifetime coverage
- Higher cost
- Flexible payments
- Opportunity to build cash value
- Example: Permanent life insurance
“Term life insurance is generally less expensive in the beginning than permanent life insurance,” shares Raj. “However, term life insurance covers you only for a limited time – for example 10 or 20 years. The cost of term life insurance usually increases if you renew. The insurance company pays the benefit if the policyholder dies during the term. Whereas permanent life insurance will cover you until death. That’s if you pay your premiums and the cost, though higher in the beginning than term life insurance, doesn’t change.”
3. Underestimating the amount of life insurance you need
“It’s important to be realistic about the amount of coverage you need,” says Raj. “An advisor can work with you to calculate how much money your family will need to cover expenses.” This includes:
- Funeral expenses
- Legal fees
- Outstanding debts, including mortgage debt
- How much money your family will need to maintain their standard of living
- Helping your church, university, hospital, or any charitable organization you supported in your lifetime
4. Not telling anyone that you bought life insurance
“If you don’t tell anyone you have a life insurance policy, there will be no one to come forward to make the claim. So, keep a record of your policy and make sure your family knows where it is,” says Raj.
5. Not updating your beneficiaries
Raj says it’s important to name your primary beneficiary and to have a contingent beneficiary. “You’ll also want to review your beneficiaries with your advisor when you have a major life change. This includes marriage, divorce, birth of a child, or the death of a beneficiary. This will ensure the funds will go to the loved ones you want when the time comes.”
6. Not reviewing your policy and your needs
It’s critical to review your life insurance policy periodically, says Raj, especially when you have a major life event. “Your life insurance needs will no doubt change over the lifetime of your policy. All these events play a role in determining how much life insurance coverage you need. So, be sure to review your policy with your advisor once a year. And if needed, you may purchase additional coverage.”
7. Waiting to buy life insurance
Delaying the purchase of life insurance is very common, says Raj. “Many people think they have to wait until they get married or have kids or buy a home. But buying a policy when you’re younger is generally less expensive. You’re also less likely to have a health condition that could make insurance expensive or make you ineligible for coverage. So, the sooner you buy life insurance, the better.”
This article is written for educational purposes.
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