Because term life insurance appears to be straightforward with very few complications, some individuals make mistakes without realizing them when obtaining a policy. Here are a few mistakes to avoid when purchasing term life insurance.
Getting Coverage too Late in Life
Since term life insurance premiums become more costly as you age, buying coverage early is vital. Moreover, your family may be left vulnerable if something unexpected happens.
Just like with health insurance, the older one is, the more of a health risk they are. This means that term life insurance could become too expensive to purchase. You could also be ineligible to purchase a policy. Purchasing a policy early can help protect your family and ensure a lower premium and savings.
Too Much Coverage for the Wrong Reasons
One of the reasons people purchase term life insurance rather than whole or universal policies is that they are much less expensive. However, individuals use the significant savings for the wrong reasons rather than purchasing a larger death benefit for beneficiaries. For example, $250,000 in death benefit costs $300 for a term life insurance policy, as compared to $2,000 for a whole life policy. Many people will use the $1,700 in savings toward non-insurance purposes. Yet, the better move would be to double the death benefit because even though you would be paying $600 per year, there is more coverage for beneficiaries.
False Information on the Insurance Application
With term life insurance, because the policy term is shorter, there is a greater temptation to hide certain health facts from the application. The thinking goes that whatever negative health condition the policyholder has will likely not manifest itself in there, for example, 5-year term policy. This way, they pay less in monthly premiums.
The problem arises if that health condition does manifest itself during the policy term, or the insurance company finds out about the false information. The insurance company could contest the benefit payment and the policy may become void upon the policyholder’s death. Even if it means paying a higher premium, it behooves you and your beneficiaries to disclose everything, even negative health conditions.
Forgetting That Term Life Insurance is Temporary
Term life insurance is just that, temporary. But people forget that this policy is not permanent and that at some point, the policy will need to be renewed, sometimes at a higher cost.
If there is a history of certain diseases in your family, a whole life policy may be a better investment because though you may be healthy now when you purchase the policy, your health may change over time.
The information in this article was obtained from various sources. This content is offered for educational purposes only and does not represent contractual agreements, nor is it intended to replace manuals or instructions provided by the manufacturer or the advice of a qualified professional. The definitions, terms and coverage in a given policy may be different than those suggested here and such policy will be governed by the language contained therein. No warranty or appropriateness for a specific purpose is expressed or implied.
