Life insurance is one of the most important financial choices you make in your life, and that means any mistakes can have significant repercussions. Here are some common errors made when purchasing life insurance, and ways to avoid them. It’s worth knowing-for your peace of mind.
Buying life insurance for the wrong reasons. When buying life insurance, most people think about their own financial responsibilities, such as covering their mortgages, their auto loans, and their other debt. Instead, try to think of life insurance from the perspective of the loved ones you would be leaving behind. What do they need to obtain financial stability when you’re gone?
Buying too little life insurance. Typically, people buy too little life insurance because they don’t know how much they really need. This may happen when purchasing life insurance via an automated system (such as an online form that suggests you buy X times your salary in life insurance). To avoid this mistake, it’s advisable to work with a professional, who can consider all factors in assessing your life insurance needs.
Buying the wrong life insurance policy. There are hundreds of life insurance products on the market. You may not understand the many differences, some of which could have a significant impact on your beneficiaries. This can make the purchase of life insurance overwhelming at times.
Most important is to understand the differences between term and whole life insurance policies. Term life is defined by Investopedia as “(providing) a stated benefit upon the death of the policy owner, provided that the death occurs within a specific time period.” Whole life pays a predetermined amount to cover your dependent’s needs however long you live.
When you decide to purchase a life insurance policy, it’s advisable to discuss it with an advisor who understands your unique needs and can guide you through the selection process.