Avoiding Common Life Insurance Mistakes: 8 Tips

In uncertain times, financial planning has become more important than ever. While no one can predict the future, one step you can take today offers lasting peace of mind: purchasing life insurance. A well-chosen life insurance policy can help ensure that your loved ones are protected financially should something happen to you. However, to make the most of your investment, it’s essential to avoid some common life insurance mistakes.

At Anderson & Associates Insurance Group, we help individuals and families make smart, informed decisions about life insurance every day. Let’s take a look at eight common life insurance mistakes—and how you can avoid them.

Not Telling Anyone About Your Policy: A life insurance policy is only helpful if someone knows it exists. Too often, beneficiaries miss out on payouts simply because no one is aware a policy was ever purchased. One of the most common life insurance mistakes is not informing your spouse, financial advisor, attorney, or executor of your will. Keeping copies in a secure but accessible location (such as with your estate documents) is also a wise move.
Owning a Large Policy in Your Own Name: If your estate is substantial, holding a high-value life insurance policy in your own name could increase your estate’s tax burden. In some cases, the death benefit may be subject to federal estate taxes. To avoid unnecessary taxation, consider setting up an irrevocable life insurance trust (ILIT) or consulting with a tax advisor or estate planning professional who can recommend strategies based on your personal situation.
Naming Your Estate as the Beneficiary: While it might seem convenient to name your estate as the beneficiary, doing so can delay the disbursement of funds. Life insurance benefits directed to the estate will typically be tied up in probate—potentially for months or even years. Instead, name specific individuals, a trust, or charitable organizations as beneficiaries to ensure timely access to the benefits and avoid potential creditor claims.
Naming a Minor Child Without a Guardian or Trust: While it’s natural to want to protect your children financially, naming a minor as a direct beneficiary can be problematic. In many states, a court-appointed guardian must be established to manage the funds, which can be costly and time-consuming. A better solution is to name a trusted adult or create a trust that outlines how and when the money will be distributed to your child.
Relying Solely on Employer-Provided Life Insurance: Many people assume their employer-sponsored life insurance is enough. Unfortunately, these policies are often limited in scope and may not be portable if you change jobs. If your coverage ends when your employment does, your family could be left unprotected. It’s wise to supplement workplace life insurance with an individual policy that stays with you no matter where your career takes you.
Waiting Too Long to Buy Life Insurance: Age and health are two major factors that influence the cost of life insurance. Premiums are significantly lower when you’re young and in good health. Waiting until later in life—or after developing medical conditions like high blood pressure or diabetes—can lead to much higher costs or even disqualification from coverage. Lock in a policy early to secure better rates.
Failing to Review and Update Your Policy: Life is always changing, and your life insurance policy should reflect that. Births, deaths, marriages, divorces, and career changes can all impact your coverage needs. Review your policy every 3 to 5 years, or after any major life event, to ensure it still meets your goals and provides adequate protection for your beneficiaries.
Underestimating How Much Coverage You Need: Trying to save money by choosing a minimal policy amount can backfire. Consider your family’s ongoing financial needs: mortgage payments, educational expenses, healthcare costs, and daily living expenses. Work with a knowledgeable insurance advisor to calculate the right amount of coverage based on your dependents, lifestyle, and future planning goals.

Don’t Make These Life Insurance Mistakes – Get the Guidance You Deserve

Making the right life insurance choices doesn’t have to be complicated—but it does require expert advice. At Anderson & Associates Insurance Group, our experienced team is here to guide you through every step, from evaluating your options to updating your policy as life evolves.