Life Insurance Mistakes May Lead to More Coverage, Not Less

Mistakes with your life insurance coverage can lead to not only frustration in the lost time and effort, but also financial issues.

According to a recent survey from the nonprofit LIFE Foundation, one in four Americans would think about canceling their life insurance policy if it led to saving money during the recession.

Prior to making a major decision such as that one, consumers should look at several insurance miscues that they may be making, and they may decide to purchase more coverage, not less.

One of the big miscues for consumers is thinking they have enough coverage.

A recent study from Allstate indicated that while respondents believe everyone should have some means of life insurance, the majority thought it should mostly cover bills and funeral expenses. Only two in 10 individuals reported life insurance should replace the income of the person who passed away, in order to continue to support any children, along with other dependents in the family.

According to a spokesperson for the Insurance Information Institute (I.I.I.), one in three adults has no life insurance at all. Of the remaining individuals, a large number of them only have the coverage from their employer policies, which typically doesn’t cover individuals who seek to support dependents after their passing.

While many people like to avoid the discussion of death, insurance experts will tell you that if you have dependents, you owe it to them to protect them from the loss of your capacity to earn an income.

Another issue to address is relying on old rules of thumb.

Over time, individuals relied on a standard “seven times income” rule to determine how much insurance was required of them. Keep in mind, however, that is not a useful means given that each person’s situations are so varied. It is best to sit down and determine what you want to protect and how you would go about paying for it.

Consumers are also advised not to ignore their non-monetary income.

Many individuals, when compiling how much of their income they would be required to replace, don’t remember the benefits that come with their employment, like health insurance and retirement account payments.

Another issue is not thinking about the long-term.

Individuals forget how long the life insurance payout should support their kids and other dependents following death.

Other individuals believe that life insurance costs are too high, even though it is possible to locate coverage to fit your needs, along with your budget. As it stands, term insurance, which makes available temporary insurance over a set period of time, is more affordable as opposed to permanent insurance, which runs a lifetime. Along with managing financial risk, individuals sometimes incorporate permanent insurance into an investment tool too.

Finally, forgetting to update coverage is a no-no.

Keep in mind that events like divorce, the birth of a child, marriage and more mean necessary updates to your insurance policy.

Life insurance doesn’t have to be a hard thing to figure out….so be ready to make it work for you today.