Life insurance is essential in safeguarding loved ones and establishing a secure financial future. A life insurance policy assures that an early death does not have a financial impact, resulting in a significant loss in quality of life when the deceased individual no longer contributes income or services to the home.
Buying a life insurance policy is a significant decision. Sadly, many people make mistakes. These mistakes could cost policies more or not give the right kind of protection.
Nobody wants to make a mistake while buying one of the essential financial products in their lives; therefore, it’s critical to avoid these five common mistakes.
1. Designating One’s Estate as The Beneficiary of One’s Life Insurance Policy.
When a life insurance policy owner/insured selects their estate as the beneficiary, the life insurance proceeds are subject to probate at the time of death. If the policy owner dies in a state with an inheritance tax, the proceeds may be subject to the inheritance tax when they should not be.
Furthermore, identifying one’s estate as the beneficiary can result in creditors having complete access to the life insurance proceeds. This is true even though most states’ laws exempt life insurance proceeds owed to identified beneficiaries, such as a spouse, child, or sibling, from creditor claims.
2. Failure to Identify Contingent Beneficiaries
Suppose the owner of a life insurance policy has designated a single beneficiary, and this beneficiary predeceases the policy owner/insured. This will unnecessarily expose the estate to all the issues described in #1. The solution is to name contingent beneficiaries who will take over as primary beneficiaries if the specified beneficiary dies.
3. Not Reviewing the Policy At Least Once in Three Years
Most life insurance policyholders have specified beneficiaries, a former spouse, or other individuals the deceased policy owner/insured would have wanted to receive the life insurance proceeds. There have been cases of children born after purchasing a life insurance policy who were not specified as beneficiaries.
To avoid such incidents, the policy owner/insured should evaluate their life insurance policy regularly for the following items:
- Who are the stated beneficiaries, and are they still alive?
- Ensure that the life insurance policy beneficiaries receive the proceeds in the manner best suited to their requirements.
4. Purchasing the Incorrect Type of Life Insurance Coverage
An individual purchases a short-term (less than 10 years) life insurance policy that will expire when the policy is most needed. If a life insurance policy does not pay out when needed, it’s not providing the “peace of mind” promised.
The solution is for a person looking to purchase a life insurance policy to consult with a knowledgeable life insurance professional to determine if the potential policy owner is applying for the appropriate type and amount of life insurance (term insurance or permanent insurance) based on their needs and circumstances. Suppose a person is considering replacing an existing life insurance policy. In that case, you should note that in recent years, new forms of life insurance plans have been available that were not previously attainable or considered. These plans may be more suitable for the policyholder’s current needs and circumstances than the policy owner’s current insurance policy.
5. The Face Amount of The Life Insurance Isn’t Enough to Meet the Financial Security Goals of The Policy Owner/Insured Family
The primary needs of a family are food, clothes, housing, and education. The parent who is the primary (and maybe the only) wage earner for the family must ensure that if they die and cannot provide for the family, they are insured for a sufficient amount of life insurance to satisfy all of the family’s future primary needs. The critical concern is thus: Will loved ones have enough finances to pay bills and costs after the primary income earner’s death?
You should do an income needs-based insurance study if you want a policy primarily to provide income protection for family members. A thorough insurance study of what a person has and what their family would require should they pass away is necessary to obtain the right amount of life insurance.
Contact Information:
Email: [email protected]
Phone: 2129517376
Bio:
M. Dutton and Associates is a full-service financial firm. We have been in business for over 30 years serving our community. Through comprehensive objective driven planning, we provide you with the research, analysis, and available options needed to guide you in implementing a sound plan for your retirement. We are committed to helping you achieve your goals. Visit us at MarvinDutton.com . Tel. 212-951-7376: email: [email protected].
