Purchasing life insurance is a big deal, and it’s important to prepare so that you avoid making mistakes that can risk your coverage.
Whether it be overspending or underinsuring yourself, you’ll want to make sure you make the right decisions for your lifestyle and needs to get the most out of your policy.
To help you better prepare, we’re breaking down a few common mistakes that new and veteran policyholders tend to make when purchasing term life insurance.
1. Not Shopping Around For The Best Rates
One of the worst things you can do when looking for life insurance coverage is to purchase the first plan you see. It’s best to shop around and compare prices so you can get the best rate for your new policy.
While you won’t need to compare hundreds of policies, narrowing down a few that might work for you is a great place to start.
Then, you can see what each life insurance company provides for a given rate and ensure that you make the right choices according to your budget and needs.
2. Not Understanding The Policy You’re Buying
Life insurance can be tricky to understand but not doing the proper research can result in getting a policy you don’t need. Or even doing something that renders your policy inactive.
In the case of the former, term life insurance offers a more affordable policy but only for a set amount of time. While this makes sense for some, it may not be the best option for others, depending on their age and risk factors.
Alternatively, it can also be difficult to understand the fine print of life insurance policies. For example, if you accidentally purchase a variable universal life insurance policy over an indexed one, the mixup can lead to the inability to meet premium payments.
Another example of the importance of understanding the policy is if you work a high-risk job. Many life insurance policies don’t cover people with certain occupations because of the increased risk. If you purchase a policy without disclosing your occupation, your death benefit may not be covered.
For those having trouble, working with a life insurance agent may provide the guidance you need to understand varying policy types and coverage details.
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3. Failing To Update Your Policy As Your Life Changes
Once you have a life insurance policy, it is your responsibility to update it accordingly. If there is a major life change, you need to let the life insurance company know in order to avoid losing coverage.
That can be positive changes like getting married or having a child, but it can also include updates on deteriorating health that impact your policy negatively.
The general rule of thumb for reviewing and updating insurance policies is once a year, or every 12 months. Consistent updates allow you to ensure you have enough coverage for your dependents and keep your policy active.
4. Not Keeping Up With Premium Payments
In most cases, there are very few reasons for a policy to become inactive, and failure to pay your premiums is one of them.
If you don’t make your monthly payment, you render your policy ineffective, which means no payment of benefits if a death occurs or cancellation of the policy by the insurance company.
For those struggling to make payments on an insurance policy, consider reaching out to your life insurance provider to investigate your options. Some companies may offer a grace period to help you manage your payments.
The Bottom Line
Steering clear of key term life insurance policy mistakes is usually as simple as taking the time to understand how they work. Whether it be looking up what you can do when facing financial difficulties to not comparing policies upfront, these common mistakes can be avoided.
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