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Life Insurance - 5 Mistakes People Make When Purchasing A New Policy

Published Wednesday, September 3, 2008 by bloggerblognet83280 | E-mail this post

1. Procrastination. Never a good habit, procrastination costs you money when it comes to purchasing life insurance. Life insurance premiums are based on the age and health of the insured. Younger people pay less than older ones on the theory that they will live longer and pay more premiums. The longer you wait to buy life insurance, the more it costs.

Remedy: Purchase sooner rather than later. The lowest price you will ever get is the one you qualify for now. To overcome inertia, set a deadline to buy insurance. You will thank yourself later.

2. Paying with after-tax dollars. Many people who can pay for life insurance with pre-tax dollars are not doing so. Instead they are paying with hard-earned, after-tax dollars. If you are self-employed, you might qualify to buy life insurance through your company with pre-tax dollars. The same is true if you are a partner in a business.

Remedy: Ask your tax advisor if you would benefit from paying for life insurance through your business or employer.

3. Designating an estate as beneficiary. Making your estate your beneficiary is a costly mistake. It subjects your death benefit to inheritance taxes it would not incur if it were paid to an individual. It also means the death benefit will end up in probate court to be settled along with the rest of your estate. That means the benefit will not be available to pay for a funeral, make a house payment, or cover any other immediate expenses.

Remedy: Designate a loved one as the beneficiary. If you are single, name a parent, sibling, or trusted friend. Discuss your plans ahead of time, so the beneficiary is prepared.

4. Naming just one beneficiary. Many people name only one beneficiary in their life insurance policies-usually a spouse. If your sole beneficiary dies before you do, the death benefit will be paid to your estate, subjecting it to all the problems outlined above.

Remedy: Designate back-ups to your beneficiary. If you have children, you can name them as back-ups to your spouse--especially if they are old enough to make good decisions. If not, turn to parents, siblings, or close friends.

5. Purchasing too little coverage. Some people attempt to minimize their premiums by purchasing very little coverage. Others underestimate future expenses that need to be covered by the death benefit. Either way, the amount they chose will not be enough to pay off a mortgage, fund an education, or replace missing income.

Remedy: Buy more insurance than you think you need. You have more insurance buying power now than you ever will again, so use it.

Bradley Steffens is the author of twenty books, coauthor of seven, and editor of the 2004 anthology, The Free Speech Movement. His Censorship (1996) was included in the 1997 edition of Best Books for Young Adult Readers. Read his latest work, Ibn al-Haytham: First Scientist, the world's first biography of the eleventh-century Muslim scholar known in the West as Alhazen.

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