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Avoid These Common Insurance MistakesProtect Your Family from these Common Life Insurance Mistakes
1. Failing to Regularly Review Your Life Coverage Not the most exciting thing to do, to be sure, but if you don't regularly review your coverage, you could be setting your family up for bitter disappointment and financial crisis once you're no longer with them. Changes in family circumstances, marriage, divorce, remarriage and the birth of children should all require a review of all of your current life policies. The amount of coverage may require adjustment either up or down, and beneficiaries also should be updated due to these life-changing events. Also, your evolving financial situation can also affect the amount of coverage you require. New obligations such as mortgage (or paying one off) or receiving an inheritance can change your overall financial position, which may require an adjustment in your level of insurance. Sadly, many people fail to adjust their life insurance coverage when these other financial changes occur. 2. Postponing Life Insurance Purchases The cost of life insurance is impacted by two major factors - your age and your health. The younger you are when you purchase life insurance, the less expensive the premium. Also, you are more likely to be in better health at a younger age. While health conditions are not a factor during federal Open Seasons, they can inhibit your ability to acquire affordable life insurance from other sources. Also, Life Open Seasons are very rare events and cannot be predicted. As silly as it sounds, don't assume you will be young and healthy forever. If you need life insurance do not postpone your purchase decision, particularly during an Open Season. You may not be able to obtain the required coverage in the future. 3. Buying the Wrong Kind of Insurance Life Insurance options can be confusing. There are many types of plans available - term life, whole life, universal life, and variable life, just to name a few. Life insurance is designed as a means to replace your income when you die so that your family will be able to maintain a normal standard of living. Life insurance is not designed to fund your retirement or fund your children's college education, or to make your family millionaires after your departure. These are goals of your investment plan and are better funded by pure investment vehicles rather than insurance products. Thus, for insurance planning purposes, term insurance is the best choice for most families. The major advantage of term insurance is that it generally is less expense than other forms of insurance, which allows for the purchase of greater amounts of affordable coverage. Term insurance is easy to understand, as well. Therefore price comparisons are a cinch. Note: Term life insurance is an excellent vehicle for a family needing a large amount of insurance and the amount of coverage can be adjusted as needs change. 4. Buying Too Little or Too Much While many experts offer general rules on how much insurance you need, remember they are just that -- general guidelines. Every family has its own special needs. So much depends on your age, whether you have children, what you earn, what your spouse earns, or how much money you have saved. Also important are the amount, type and duration of your obligations -- home mortgage, college education, plus other loans and obligations. The key starting point is to estimate how much income your family will need on an annual basis and how long your family will be dependent on this income. Once this is determined you can calculate the amount of insurance that will be needed to generate the required income for the desired period. Unfortunately, most people do not approach the insurance purchasing decision with this methodology. As a result, many people find that they are either over or under insured - not a good situation in either case. 5. Thinking the Only Way to Buy Life Insurance Is from an Agent You may be avoiding considering life insurance purchases because you simply don't want to deal with insurance agents. Life insurance itself can be an uncomfortable topic, and the thought of dealing with an aggressive insurance sales rep can be a deterrent. This is no rap against all insurance agents; most are reputable and provide a high level of professional service. But if you're still hesitant about dealing with an insurance agent, you do have other options. As a federal employee, the Federal Open Season provides a non-threatening way to increase your insurance coverage. Additionally, there are other resources such as employee groups and online quoting services that avoid the potential pressure of an insurance salesman. Key point: Don't avoid purchasing needed insurance for your family just to avoid an insurance salesman. 6. Failure to Consider Insuring Your Spouse and/or Children While terribly unpleasant to contemplate, the unexpected death of a spouse or child can hit your family's finances in big ways. If your spouse is employed, the potential loss of income will be felt. Even if your spouse is not employed, the potential loss of a spouse could result in additional expenditures, for example, in child care. In either case, in reviewing your life insurance needs you should consider the effect the potential loss of your spouse would have on your family's ongoing finances. In most cases it is not necessary to possess a great deal of insurance coverage on your children. While any such loss would indeed be tragic, it would not have a devastating financial impact on your family's. However, a small amount of insurance coverage is advisable to cover potential funeral costs, which can range from $4,000 up to $10,000. |
