Many people make simple mistakes when considering the purchase of life insurance. These mistakes can have a devastating effect on the beneficiary of the life insurance and can cause unnecessary and undue harm.
Approaching the purchase of the life insurance policy with sufficient information can help avoid these basic mistakes and have the policy provide the desired protection.
The three basis mistakes made in the purchase of life insurance:
Selecting the wrong type of coverage:
A life insurance policy is one of two types: temporary or permanent; If the need is only temporary (such as debt coverage) then a temporary policy may be appropriate; These policies are known as term insurance and can be for almost any term period such as 10 years or protection to a specific date such as age 70. A permanent policy (such as whole life) will provide protection for your whole life; This policy will pay the death benefit regardless of how long you live.
Many people look at life insurance as a necessary evil and the thought of a large amount of money for a beneficiary can be unsettling; But the fact remains that in the event of death income and debt will need to be offset and having enough life insurance is important; The formula for a reasonable amount of life insurance to purchase is 7 times your gross income plus the unpaid amount of a mortgage; Other considerations could be funds for retirement of the remaining spouse or funds for a child’s education; It is always suggested that to error on the side of too much coverage is prudent.
Not being informed:
Many people are not sufficiently informed about their options when it comes to buying life insurance; There are numerous policy choices and numerous company choices; It is always smart to investigate several choices before making your selection. Many well qualified insurance professionals are available to assist you in your policy selection and being informed as to your options will help you make the correct decision
The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor or other licensed professional.