6 Mistakes to Avoid When Shopping for Life Insurance
Jan 2, 2021 | Insurance
Shopping for life insurance can be a complicated process if not done correctly. We’ve put together a list of mistakes to avoid, so your experience while shopping for life insurance can be as easy as possible.
1. Selecting the wrong type of coverage
Selecting the right type of life insurance policy may be very tricky. As a consumer, the last thing you want is to be in a position where you end up with the wrong type of coverage when there is no need to if you understand the differences in the types of plans that may be available to you. For example, let’s say you’re a 65-year-old looking for a plan to cover your burial/ final expenses- the ideal plan would be a permanent plan such as a Whole Life or a Guaranteed Universal Life policy that will give you the peace of mind of knowing that regardless of when you pass away you will have coverage that you can count on. On the other hand, let’s say you’re a 35-year-old that just became a first-time home buyer, and you want security of knowing that if you pass away the mortgage is paid off for your family. In this case, an ideal plan would be a term policy and we recommend you shop for a term that matches your mortgage term agreement. Regardless of what your unique situation is, it is critical you shop for the right type of coverage so you can accomplish the goals and objectives that matter to you most.
2. Solely relying only on your employer/group coverage
Group life insurance is a great benefit to have but in many cases coverage amounts are not enough. Often employers only offer 1 – 2 times your annual salary and in most cases, you are not the owner of your policy. Therefore, if you are no longer employed through your employer, you will more than likely lose your coverage. If this happens and you realize that you must continue with coverage, you need to be aware that you will be older then and premiums will be higher. Plus, if your health changed, you may not even qualify for coverage and if you do, you may be asked to pay a higher premium. There are times when you may have the opportunity to convert your group coverage to an individual plan, but make sure you understand any limitations/ restrictions that may apply. To re-cap, if your employer offers group coverage, take advantage of it but we advise not to solely rely on it. Be proactive and take out your own individual plan that you can control as the owner of your own policy and ensure you are insured for the right amount.
3. Waiting too long to apply
It’s important to understand… the younger you are the more affordable your cost will be. The longer you wait, the older you get resulting in higher cost of insurance. In addition, as you get older, if your health changes for the worse, you may be asked to pay a higher premium and depending on the severity of your health you may not even qualify for coverage. Be proactive and avoid continuing to wait before it’s too late.
4. Not listing a contingent beneficiary
An important decision you will have to make is naming beneficiaries designated to receive life insurance proceeds if you died while your policy was in force. A mistake people make sometimes is only designating one beneficiary on their policy, such as a spouse or a child. Think about what would happen if you died with your primary beneficiary at the same time. There would be no further beneficiaries listed on your policy and the insurance company would be required to pay proceeds to your estate. If you are not okay with this, we advise considering adding one or more “contingent” beneficiaries as part of your insurance planning process.
5. Working with an agent that does not ask the right questions
An agent’s responsibility is to understand your unique situation and understand what you’re looking to accomplish so a professional recommendation can be made. To do this, an agent must be a good listener and know the right questions to ask. It can be as simple as you disclosing to your agent that you are a diabetic and the only follow up question they ask if it’s currently controlled with medication. Depending on which insurance carrier your application is being submitted to, the underwriting team may come back with a decline if they discover that though your diabetes is currently controlled with medication, you use insulin, perhaps you have diabetes in combination with neuropathy, or maybe your diabetes was diagnosed at an earlier age, but the carrier only considers diabetes when diagnosed over the age of 50. This can end up being a scenario that could have easily been avoided if the agent would have asked the proper questions from the very beginning.
Another example would be if you smoke cigars or dip tobacco and the agent only cares to ask about cigarette consumption. An application can be approved but may end up being approved with tobacco rates, making your premium much more expensive depending on your age and health status. The right agent would identify the type of products that are used and how often it’s consumed, since there are carriers that may offer non-tobacco rates for those that only dip tobacco or smoke a limited number of cigars per year. By the end of a discovery call, an agent fulfilling proper field-underwriting should have a clear understanding of your health history, family history, build, medications, surgeries, tobacco/nicotine usage, history of felonies/ DUI’s, engagement in high-risk activities or occupation, etc.. in order to be better prepared to make a well-informed professional recommendation.
6. Purchasing inadequate coverage
We can first acknowledge that having some coverage is much better than having no coverage. With that said, we recommend you try your best to ensure you have the proper amount to help protect what matters most to you accordingly. Instead of randomly picking a figure just because it sounds like a good number, take the right approach and ask yourself the following questions:
If I died today…
- How many years must my income be replaced for my surviving spouse/ children and what standard of living do I want them to have moving forward?
- Must my children’s education be paid for?
- How much will my burial expenses account for?
- How much is currently owed on my mortgage and do I want the full amount to be covered?
- How much debt do I owe and is it important it is paid off in full?
- Do I have any unpaid medical bills?
Our Final Thoughts:
These are important questions you can start asking yourself to get a better idea on how much coverage you should be covered for. The next step is to ensure you are working with a trustworthy agent that can shop you for some of the best deals in the market.
We hope this information was helpful and you feel more confident as you begin the process of shopping for life insurance. As a consumer, the last thing you want is to be in a position where you end up with the wrong type of coverage, or as in many cases… simply making the mistake of over-spending on a plan when there is no need to if you work with the right advisor from the get-go. Here at the Avanti team, our goal is to help you identify which plan(s) will better accomplish the goals and objectives you are looking to achieve. We take the time to understand your unique situation and we walk you through the process step by step, so everything is clear to you and from start to end. Our hefty experience & knowledge along with our friendly and caring customer service will ensure you have a pleasant experience in working with us if you decide to give us an opportunity.
