10.13.2012

Common Mistakes to Avoid When Shopping For Term Life Insurance

Navigating the important aspects of shopping for term life insurance can be daunting to someone whos new at it. You need to consider aspects payment plans, annual costs, deductibles, benefits, understanding the various types of life insurance and how needs change with changing circumstances. Heres a list of common mistakes shoppers of life insurance often make.

Not purchasing life insurance The first major mistake people often make is not purchasing life insurance at all! According to LIMRA, an insurance research organization, 30 percent of American household have no coverage at all (August 2010 report).

Being under or over coverage The second biggest mistake is when you do purchase life insurance, the coverage is not sufficient to equal the familys needs, according to the trade group, American Council of Life Insurers (ACLI).

A common mistake people make is not considering the value of a stay-at-home spouse. Such a person is often under-estimated but according to Marvin Feldman, president and CEO of the nonprofit Life and Health Insurance Foundation for Education (LIFE), it would take about $117,000 a year to replace a stay-at-home spouse.

Coverage should include the debts that you would leave behind, such as a mortgage or outstanding credit card payments. While you should make sure your family is adequately covered, you should avoid paying for more coverage than you actually need. This puts an unnecessary burden on your expendituremoney you could put to good use, elsewhere.

Making a decision based on money alone In other words, dont purchase the cheapest term life policy! Read the fine line and compare quotes thoroughly. Often a life insurance company will offer free riders or other benefits that may save you costs long term. Look for product features such as renewability privileges, conversion rights, riders and company ratings.

You should examine the rating of the life insurance carrier as well. The ratings will give you information about the financial strength or integrity of a life insurance company. You need a life insurance company you can trust to expedite your death benefits to your loved ones in a timely manner after you are gone.

Not evaluating your coverage periodically. Life insurance needs change as life changes. You may get married, have children, purchase a house, etc. The converse could also be true. Your children may have moved out of the house, your debts are paid off. You may not need as large a coverage as you initially purchased. These changes must be reflected in your life insurance coverage. It is advisable to conduct a life insurance need analysis at least every 2 to 3 years.

Cancelling an old term life policy before a new one is in effectLife insurance is competitive and you may be able to find a cheaper life insurance policy with added features. Dont cancel the old policy until your new policy is in effect. This ensures that you are covered all the time. If anything were to happen to you during that, albeit, brief period of time between coverage, both your old and your new life insurance company would not be obligated to pay any death benefits to your family.

Not checking a life insurance application form before it is submitted. Agents or brokers often fill out the form for you. Ideally, you should either fill out the form yourself or check all the facts before submission. Remember, any error on the form can be considered as falsified information. It is a criminal crime and may result in termination of policy. If the discovery is made only after you die, a life insurance company can withhold payment of death benefits to your beneficiary.

Neglecting to do research Dont be influenced by a savvy salesman who may want you to purchase a particular policy simply because he or she stands to gain from the sale. Do your own research and ask the right questions. There are helpful website that serve as credible research resources to know more about life insurancethe types available and which one is most suitable for you.

Ask questions. Remember, life insurance companies hike premiums and you need to when they do and by how much. Many people neglect to consider such issues and their policy is allowed to lapse simply because they could not afford to pay the hiked up premiums. For term life insurance, lapse rates were around 7 percent in the first and second year and about 6 percent in the third year, according to a report from LIMRA (2009). To avoid this, you may want to consider purchasing a level term life policy. This will keep your premiums steady for the entire term period.

Not shopping around for life insurance You dont need to run from one life insurance Company to another to get a quote for comparison. The Internet provides a fast and reliable means to get multiple term life insurance quotes online. You can compare life insurance rates from the best carriers and make an informed decision. Such online providers may save you a substantial amount of money as well. You may be able to get savings of up to 70 percent on a cheap life insurance policy with terms that perfectly suit your personal situation.





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