They say the only two sure things are death and taxes. If 2020 and beyond taught us anything, it was that this truth could blindside us. No matter how often we exercise, how well we eat, and how many bad habits we avoid, we will no longer be here one day. We wish everyone a long and happy life, of course – but should something happen unexpectedly, you want to ensure that your family is taken care of. There are several ways to guarantee their security, but one of the easiest is to obtain a life insurance policy. This coverage can give everyone the peace of mind that no matter the uncertainty of the future, those left behind will be financially safe. While this type of policy is great protection, there are some life insurance pitfalls you should avoid.
Avoid these Life Insurance Pitfalls
- Keeping It A Secret: If your beneficiaries – be it your spouse, parents, or children – are unaware that you have a life insurance policy, they may never claim the benefits they are entitled to. If you find it difficult to talk about this topic, at least inform the executor of your will, legal counsel, or financial advisor of the existence of the policy.
- Not Considering Taxes: If you have a significant amount of assets, your life insurance policy may be subject to excessive federal taxes upon your death. Speak with a tax professional or life insurance expert to discuss your options and any possible strategies.
- Not Specifying a Beneficiary: If you name your estate as the beneficiary of your policy, benefits will not be released until legal probate is completed, no matter how long it takes. Instead, name an organization or individual as the beneficiary – which will also help keep the proceeds of your policy out of the pockets of your creditors.
- Naming a Minor Child as Beneficiary: One of the primary reasons to establish a life insurance policy is to protect minor children in the event of your death. However, if a minor child is a beneficiary, the court will likely appoint a guardian to represent your minor children, costing both time and money. Instead, you can name a trusted family friend, sibling, or relative as the beneficiary, but outline how the benefits are to be distributed in your will. (Be sure to discuss with your attorney to ensure the monies make their way to your children.)
- Depending on Your Company Policy: Many people have life insurance coverage through their employer, but most people ignore the details of the benefits. Benefits often change. Be sure to carefully review your benefit level and reaffirm your status annually if you leave the job.
- Delaying the Inevitable: Life insurance is more affordable when the policyholder is young and healthy. Conversely, average rates increase with age and medical conditions. Many people choose to implement a policy as soon as children are born.
- Not Buying Enough Coverage: One of the largest life insurance pitfalls is underestimating how much money your family will need should you no longer be there. More coverage obviously generates a larger premium. People sometimes skimp on the coverage amount to save on the front end. Remember, you can revise the amount at any time if your life situation changes.
Here’s a bonus tip – another significant mistake is never reviewing the policy once you put it in place. However, significant life events may alter the beneficiaries of your policy or the level of compensation needed. These events may include the birth of a child, a divorce or remarriage, or the death of a spouse. Experts recommend evaluating your life insurance policy every 3-5 years to determine if any changes should be made.
The best way to avoid life insurance pitfalls is to speak with the experts. Call Anderson & Associates Insurance Group today for a consultation. We are here to help.
