3 Costly Mistakes You Are Making on Life Insurance

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Thinking about your life insurance is not much fun, and far too many people ignore this necessary task. Too few people have adequate life insurance coverage. And the ones who do aren't getting the best coverage at the best premiums, either. Let's consider three common mistakes.

1. Blindly Auto-Renewing Your Policy

My life insurance is bundled with my homeowners and car insurance for the best deal in premiums. So my insurance policies renew every six months, and the personal property insurance recalculates the premium every six months as well. The price I pay fluctuates a little bit every time.

But is this the best price for life insurance? Of course I'm a little bit older, but I've also worked hard to lose weight. I've been working out with a personal trainer. Could I negotiate a discount if I simply do not blindly renew my life insurance policy? It may be worth a call to my insurance company to find out.

2. Not Re-evaluating Your Coverage

You should re-examine your coverage either every year or every couple of years at the very least. It is imperative that you update life insurance coverage when your life changes.

"Life insurance is a key foundation for any long-term financial plan," says Michael H. Baker, a certified financial planner with Vertex Capital Advisors in Charlotte, North Carolina. "It's important that you review your coverage any time there is a significant life event. You want to be sure that your current coverage can replace that lost income if something unexpected happens to you or your spouse."

"While I don't think it's necessary to get new life insurance quotes every few years, I do think it's important to review the amount of coverage you need even more often than that," says Scott Halliwell, a certified financial planner with USAA. "Typically, I say to check to see if you have enough coverage at least annually, or with any major life events like the birth of a child, marriage, divorce, new home purchase, etc."

Halliwell favors adding to your existing coverage, rather than buying a new policy. "Every situation will be different so it wouldn't hurt to check both ways. In my experience, people often have too little life insurance, not too much," he says.

No matter which option you choose, ensure that you wait until your new life insurance policy takes effect before you cancel your old policy. You don't want any gaps in your life insurance coverage.

3. Not Getting Multiple Quotes

Nothing good comes from settling on the first offer that comes your way. Ask my friend who accepted a bad offer on refinancing his home. There is a reason that the government requires three bids on almost every contract.

You're better and safer in numbers. If you want a good deal on products and services, life insurance included, you need to get multiple quotes.

"It is essential that you get multiple quotes when purchasing life insurance as prices can vary widely for essentially similar benefits," says Todd Tresidder, financial coach, author and publisher of The Financial Mentor. "The reasoning behind the shopping process is intuitive to anyone who has hired a contractor, purchased a home or bought groceries. You must be a savvy consumer by getting multiple quotes and reading the contracts to get the best value for your money."

Do not settle on the first offer or quote for, not only premiums, but benefits as well. You should read all of the clauses in your policy. You should understand exactly which perils that the insurance company will pay out to your beneficiaries. While price of the premiums may be the same among many policies, the terms and clauses may be the differentiating factor.

You could be overspending and leaving savings on the table by blindly renewing your life insurance policies.

How often do you get quotes for new life insurance policies? Do you just blindly renew your policies? Are you leaving money on the table doing that?

Hank Coleman is the publisher of the popular personal finance blog Money Q&A, where he answers readers' tough money questions. Follow him on Twitter @MoneyQandA.

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13 Comments

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Kevin

The flat-out easiest way to arm yourself with multiple quotes - before you ever speak with an agent - is to visit a web site that let's you compare rates from as many insurers as possible.

QualityTermLife is a good one where you can get instant, anonymous quotes. You can then buy from them or anyone else you choose. No obligation and no sales calls.
http://www.qualitytermlife.com

June 26 2014 at 6:50 PM Report abuse +1 rate up rate down Reply
mac2jr

And before someone asks, Yes I was a Licensed Life Insurance Saleperson in the State of California, and have since gone on to more reputable endeavors.

June 26 2014 at 4:31 PM Report abuse +2 rate up rate down Reply
mac2jr

The insurance indust needs to be better regulated as it is cheating people, causing undo harm to people, and doing everything it can to NOT pay for a person's losses.

Case in point, friend had an auto accident 6 weeks ago and it was immediately deemed to not be her fault. The insurance company, State Farm (who is running hundreds of ads each week about how great they are) has so far 'screwed up' the claim nearly a dozen times, and still has not paid (the offer is about 40% less than the cost of a replacement vehicle of same make, model, and milage).

They claim that they are 're-organizing' the company and therefore, cannot figure out what to do (an excuse to delay payments as long as possible).

This also happens with property insurance, life insurance, medical insurance, liability insurance, etc., the "Profit" motive of the Management and the Investors COMES FIRST, BEFORE the person that has paid the premiums and NEEDS the payout in order to get his or her life back to normal..

Wake up America, WAKE UP..

June 26 2014 at 4:29 PM Report abuse +2 rate up rate down Reply
1 reply to mac2jr's comment
mac2jr

industry...

June 26 2014 at 4:31 PM Report abuse +1 rate up rate down Reply
mac2jr

A little off the subject, but one also needs auto insurance, property insurance, dental insurance, eye health insurance, medical insurance, flood insurance, and life insurance, which can make most poor people even poorer. Poor people will therefore remain poor due to not being able to afford most of these insurances, and this leads to more losses, bad eyes or teeth or health, which leads to poor job opportunities.

We need to take the PROFIT out of the insurance industry, and return to the basis of 'real insurance' which is that people in a community pool their assets so that if a member of the community has an 'emergency' or 'serious need', then he or she is helped by the rest of the community. When we added "profit" and "Wall Street" to the insurance industry, we did not help people, we harmed and killed people.

Wake up America, WAKE UP

June 26 2014 at 4:21 PM Report abuse +2 rate up rate down Reply
1 reply to mac2jr's comment
Kevin

mac2jr, yes insurance can be expensive. But that is not an excuse for neglecting to have life insurance. You can visit a website that provides online quotes and see that you can get a very substantial amount of coverage for only one or 2 dollars per day

QualityTermLife is one of these sites that let's you compare rates from dozens of the best insurance companies. No excuse not to have term life insurance if you need it.

June 26 2014 at 6:46 PM Report abuse rate up rate down Reply
mac2jr

The commission on a Life Insurance Policy is about 70% the first year of the policy, and about 5% for each year the policy is renewed.

You have Whole Life, which is an insurance coupled with a "Savings" account, and usually has to be in force for 20 years or more. You can "borrow" against the cash savings on this, but it is NOT recommended.

There is 'pure' insurance called Term Life which is much less expensive, but does not have a "saving account" attached, and it cannot be 'borrowed' against.

There are "Key Man" insurance policies that usually cover an employee that is difficult to replace, therefore covers the injury or death of this employee, payable to the employer...

Term Life is the most affordable, and it is also the most recommended for most. The problem with ALL insurance is that if you miss a premium, or drop the insurance, you have to start over if you want a to have continued coverage.

This is how insurance companies make their money, they KNOW that 99.99999% of those buying insurance at a young age will probably miss a payment or drop the insurance, thus NO PAYOUT is ever MADE on the policy. Which translates to PURE PROFIT for the Insurance company...

Wake UP America, Wake UP...

June 26 2014 at 4:11 PM Report abuse +2 rate up rate down Reply
Jeff King

You may have your life insurance and car and homeowners with the same company but that will NOT give you a discount on your life insurance. Anyone that says you get a discount on your life insurance because you have your car and home with them is not telling you the truth.

June 26 2014 at 11:23 AM Report abuse +1 rate up rate down Reply
razov

I agree. Every financial planner and investment analyst knows the insurance industry's dirty little secret. You have to die early in order to get any kind of return on your premiums, otherwise the insurance companies always make money.
The reason for this is simple. Life insurance is an emotional and psychological purchase, never intended to be a solid financial investment like a diversified portfolio of stocks, bonds and real estate. So, unless you are sick or know you will die young, leave the money in a mutual fund instead for your heirs.

June 26 2014 at 11:18 AM Report abuse rate up rate down Reply
3 replies to razov's comment
teabuster2

If you don't have dependents and you're financially solvent, you don't need life insurance.

June 26 2014 at 9:44 AM Report abuse +5 rate up rate down Reply
1 reply to teabuster2's comment
Carl A Logan

teabuster2, Amen. Are you Financially Independent or are you Financially Dependent.?

June 26 2014 at 2:55 PM Report abuse -1 rate up rate down Reply