Guides to avoid mistakes Buying Life Insurance

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Avoid mistakes Purchasing Life Insurance

While buying insurance the mistakes are those made over and over—in fact, countless times over the years—and continue to be made. 

Each of these life insurance mistakes has two things in common: First, each has potentially serious consequences in terms of both expense and aggravation. Second, each can easily be avoided or, if found in time, can be corrected quickly and inexpensively. There is a relatively simple solution to each of these ten common mistakes.

Who cares if these ten mistakes are not found and fixed? Certainly not the IRS. It profits from the mistakes of omission or commission made by others. The parties who care most about these mistakes are those that must make do with less or must do without. 

The irony about all these errors is that they do not involve complex tax or other laws, and—perhaps for that very reason—are seldom discussed in law school, estate planning council, or CPA courses. Yet for a professional advisor to ignore or overlook them may be as poor or malpractice as to draft a will improperly, fail to suggest a marital/nonmarital trust, or neglect to file a tax return on time. And most of these mistakes can be spotted easily—even if you are not a professional advisor.

Life insurance may be one of the most important purchases an individual (and/or his or her business) will ever make. As is the case with any important purchase, it pays dividends to avoid the pitfalls into which a buyer can so easily fall. These common mistakes can be avoided by following the simple checklist.

Checklist for avoiding mistakes

1.       An insured’s estate should not typically be named the beneficiary of insurance.

2.       At least two backup beneficiaries should be named.

3.    At least every three years, a written confirmation of the status of policies and beneficiaries should be requested from the insurer’s Home Office.

4.      The insurance product should match the problem. Be sure the insured has the right policy for his/her/its needs.

5.      Above all, check to be sure there’s enough life insurance to provide food, clothing and shelter, and to pay off debts so that those the insured loves can continue in their present lifestyle.

6.       Don’t name minors as outright beneficiaries. Consider a trust or settlement option.

7.       Consider a transfer of life insurance to others to save federal estate taxes.

8.      Check to see if your business or practice can provide your family with insurance on a more cost-effective basis.

9.     Remember that term insurance by definition runs out and contractually becomes more expensive as you grow older.

10.   Don’t buy life insurance as though it were a commodity. The knowledge of the advisor with whom you deal and the integrity of the insurer and their commitment to service can make a major difference as to how cost-effective life insurance will be.