It’s important that you consider your life insurance policy far before you’re ever in need of one. It’s easy to make a few simple mistakes with your policy that could end up leaving your beneficiaries high and dry if a tragedy befalls you. Doing something like cancelling your policy during a financial downturn, like a recession, can be a drastic mistake with unintended consequences. We are going to discuss some of the most common mistakes that should be avoided when buying or considering a new life insurance.
Believing Your Coverage is Enough
Most people don’t consider their insurance policy as a source of income for their family in the case of their death; their only concern is that the policy covers bills and funeral expenses. A common mistake is to choose a policy that only covers the costs of death, and not what the family will need to survive on after the loss of a breadwinner.
Outdated Calculation Methods
The old rule for calculating your coverage was “Seven times your income”. This may not be helpful in every case since the needs of each family are unique. Someone with five kids will need much more insurance than a person with just a spouse. A better method is to calculate how long your wife and children may need to go without income after your death.
Avoiding Long Term Thinking
Many people don’t think of how long the award from their policy should support their family’s expenses. Consider this example: if you have a 5 year-old child then a policy that will cover his expenses until they’re 15 should suffice. It is always important to consider how long the money will have to last.
Ignoring Non-Monetary Income
Commonly, people do not consider how much they will need to make up for expenses like benefits, health insurance and a retirement plan that would normally be offered by their employer. You should plan for your life insurance to cover all of these expenses.
Not Updating Your Policy
With every major change in your life, like the birth of a new baby, a crippling illness or a new major expense like a house, it is important to upgrade your life insurance policy. Anytime anything major changes in your life, you should think about updating your policy.