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Common Mistakes in Buying Life Insurance

Although buying life insurance can be a smart decision, there are many errors that could make your purchase backfire. These are just some of the common life insurance purchasing mistakes that you should avoid.

Lying on your insurance application

This is the biggest mistake people do in their application. The most common thing that people lie about is smoking, since smoking can significantly increase the provider’s risk, and in turn, your premiums. In addition, if you failed to mention any medical conditions that you are suffering from, and this is found out later, you may be denied coverage and your family will not be paid the benefits.

Failure to name at least two backup beneficiaries

If your beneficiary dies before you do, all of the proceeds of the insurance will go to your estate. Always make sure to follow the rule of two and assign two backups for each person named as your beneficiary.

Naming your estate as your beneficiary

By doing this, your creditors will have full access of the insurance proceeds, which may even be subjected to higher state taxes compared to when the proceeds are paid to a named beneficiary.

Naming minors as beneficiaries

A lot of problems can result from this mistake. First, if your beneficiaries are minors and you suddenly die, the proceeds won’t be paid to them immediately. A guardian would be needed to make an appointment to court which could be expensive and time consuming. Second, the guardian might not know how to handle the proceeds properly. Third, once your beneficiaries receive the benefits at the legal age of 18, they might not have developed that maturity yet to spend the money properly. To avoid this problem, your next best option is to set up a trust fund which they can only access at the right time and at the right way you wish them to.

Failure to regularly check your policy

A lot of things can happen within a few years from now. Someone whom you assigned as beneficiary today, for example, would not be the same person you would like to name your beneficiary a few years later. If, for instance, you just had a divorce, you sure would think twice about letting your former spouse remain your beneficiary. Reviewing your policy at least every three years can help you determine what needs to be changed.

Under insuring

Under computing for your family’s future expenses can cause shortage of the financial support you intended them to have. A useful guide in determining the amount of insurance to buy is ten times your annual salary, however, don’t forget to factor in unexpected expenses, debts, and possible work benefits.

Not buying life insurance while you’re young

Most young and healthy people ignore the importance of insurance and tend to postpone getting one. However, once they feel the need of it when they’re older, it might already be harder to get one, and the premiums will have most definitely gone up.

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