Avoiding Mistake In Life Insurance Planning

Insurance planning is an act of generosity. It is done to protect our loved ones and to provide a safety net once we are gone. People take time from their busy schedules to buy from an insurer, but they may try to hurry through the fact-finding process to save time. In these days of acquiring financial documents online, some people are making mistakes when buying life insurance that could negate the benefits of having it.

1. Not listing a contingent beneficiary.
A contingent beneficiary receives the death benefit if the primary beneficiary predeceases the insured. Adding a contingent beneficiary provides a secondary receiver if something should happen to both the insured and the primary beneficiary. Typically, the spouse is listed as a primary beneficiary and children are listed as contingent.

Because insurance proceeds are paid promptly upon the death of the insured, having a contingent beneficiary means that the funds will be available even under tragic conditions where both spouses pass away in a common accident or if the primary beneficiary dies before the insured and the policy provisions have not been amended.

2. Underinsuring.
It is difficult to see far into the future. But that is what is necessary when planning your life insurance needs. We can envision our near future but going farther out is a hazy fog filled with dreams and goals. It is important that the insurance bought today is appropriate to cover current expenses and needs and it is essential to build a buffer or cushion within it so that it can keep pace with rapid changes over time. Over-insuring is an easy solution, but the premiums must be affordable.

The best course is to purchase as much insurance as you can comfortably pay for — use term insurance where appropriate to increase coverage — and then work with an agent or company representative to move some of that term insurance into permanent whole life as your job promotions and income increase. It is important that your insurance benefit provide enough value to assure that your family’s lifestyle will not be severely impacted by a sudden death.

3. Buying the wrong kind of insurance.
When buying insurance many people buy term insurance. It is low premium, and all carriers provide it. Term insurance is great for a specific purpose with a definable timeline — such as until the children are grown.

However, if the plan is to have insurance until death, which may be far into the future, whole life insurance may be a better option. It is important to consider the purpose of the insurance and buy the best policy to fit that purpose.

4. Relying too heavily on employer-provided insurance.
Employer provided life insurance is a great company benefit. However, it does have its limitations. Control over the policy and its benefit rests with the employer. In addition, if the employee resigns or retires, the insurance may not be portable. In other words, the insurance cannot go with the employee and any benefit it provides will be lost. It is quite sensible to consider your employer’s insurance package and include it in your insurance portfolio, but it must be combined with personally owned insurance that you control.

Life insurance is a valuable resource. It provides a large amount of money at a time when the family most needs it. However, a policy we think is fabulous may be ill-suited if it provides too little money or provides the money in such a way that it does not last.

Serious discussions with your insurance agent or company representative should be done on a consistent basis and your choices should be reviewed regularly. Even online carriers offer some support when questions are raised about the policy. It is a good idea to take advantage of and fully consider whatever advice you receive.