The term life insurance refers to a contract that mandates an insurance company to pay a specific sum of money to named beneficiaries of an insured policyholder after their demise. Buying a life insurance policy has many advantages. The most significant is that proceeds from a life insurance policy ensure that your loved ones are adequately cared for if something happens to you.
Many people tend to make certain mistakes that put their family members’ finances in jeopardy. Nine times out of ten, surviving family members experience difficulty keeping up with day-to-day expenses and eliminating outstanding debts. To help mitigate some of these consequences, here are three common mistakes people make with life insurance.
1. Opting for the cheap policy.
There’s nothing wrong with shopping for an affordably priced life insurance policy. Keep in mind that the coverage amount determines what you get in return. Life insurance plans can be tricky, so it’s best to understand the benefits offered that come with each plan.
If you’re in the market for a comprehensive life insurance policy, the first step is to compare life insurance policies to find the one that’s right for you. If you can’t afford permanent life insurance, think about getting a term life policy. Keep in mind that term insurance only covers you for a specified period. For example, a 20-year term policy provides coverage for 20 years. If you believe you need lifetime coverage, a permanent life insurance policy seems like your best bet.
So that you know; lifetime coverage can serve as an investment vehicle that builds cash value over time. However, permanent coverage costs more in premiums than term coverage. If you’re on a term policy, feel free to ask your insurer or insurance agent if you can convert your existing plan to permanent coverage.
2. Waiting to buy life insurance.
When choosing a life insurance policy, remember to factor in the cost and the amount of coverage you need. Many people make the mistake of waiting for life insurance coverage for the price to drop down a little before they buy. They don’t know that insurance companies base premium costs on many factors, including the age and well-being of the prospective policyholder.
Essentially, insurance rates increase as people get older or their health deteriorates. For the most part, specific health conditions and illnesses can make you ineligible to purchase life insurance coverage. The longer you delay your buying decision, the lower your chances of finding a plan that offers the best rate for you.
With that in mind, now’s the best time to request a life insurance quote that adequately covers your needs. Nobody has the power to predict the future. Decide to buy a life insurance policy now to ensure your loved ones have peace of mind and money to take care of themselves when you leave this world.
3. Hiding information from the insurance company.
While the decision not to buy life insurance may not affect you directly, it’ll significantly impact surviving family members’ finances. One critical mistake people make with life insurance is keeping vital information from their insurers. Insurance companies ask several questions during the underwriting process to determine if a person can buy life coverage and the rate to charge. These questions may bother several things, including health records, family medical history, occupation, and hobbies.
Many people provide false answers to some of the questions asked during the underwriting process. Unknowingly to those people, insurance companies verify every information to ascertain its authenticity. Try to be as honest as possible when answering questions in the application form. Keep in mind that your insurer may request your permission to assess your medical records and motor vehicle report. Some insurance companies go as far as asking you to take a medical exam or use third-party sources to verify the information you supplied to them.
You may be denied coverage if the insurer finds out that you were intentionally dishonest or withheld some crucial information during the application process. If you manage to falsify or withhold information successfully, the insurer has every right to deny your beneficiary the death benefit after you are gone.