We know that life insurance can be confusing. And because it’s more of an emotionally charged topic, than, say, car insurance, we’re often less likely to ask questions about it. Our goal here at Our Life Covered℠ is to not only provide life insurance, but also to provide education about life insurance and what an important role it can play in helping to provide a more financially secure future for your family and peace of mind for you. In that spirit, we’re here to share a few common life insurance pitfalls that many people may simply not know about.
We always recommend speaking with a financial advisor who is familiar with your individual needs, but we hope this at least sparks that conversation!
#1: Thinking you can’t afford life insurance
Adding another bill to the stack can feel daunting, but the opportunity to better protect your family is an expense worth budgeting for. And the good news is, life insurance probably doesn’t cost as much as you think!
Nearly 80% of Americans overestimate the cost of life insurance. Among Millennials, in particular, this is an issue: 44% believe the cost will be FIVE TIMES what it typically is.
So before you assume that life insurance is financially out of reach, do some research. Get a free quote. Talk to an insurance expert. And if you’re still on the fence, think about some of the other expenses you pay for each month without blinking an eye. Sometimes all it takes is a little perspective to make you reconsider.
#2: Leaving a life insurance benefit to your estate
Rather than leaving your life insurance proceeds to your estate, choose a beneficiary…and be sure to keep your policy updated if that beneficiary should change.
First things first: a beneficiary is a specific person identified on a life insurance application to whom insurance benefits are paid following the policy holder’s death. An estate is simply the sum of all possessions at the end of life and is distributed according to the terms of your will.
It’s a fairly common practice for people to leave their life insurance benefit to their estate rather than naming a beneficiary. Setting up a life insurance policy can be an emotional process, and making life insurance part of your estate allows you to avoid thinking about the details too much. So what’s the difference between designating a beneficiary and leaving the benefit to your estate? Your loved ones inherit the money either way, right? Well, sort of, but there are compelling reasons to choose a beneficiary that we would like to shed some light on.
In many cases, life insurance benefits left to an estate may be subject to inheritance tax, while benefits left to an individual are not.
If life insurance proceeds are paid to an individual, creditors aren’t always able to access them to cover claims. However, if they’re paid to an estate, outstanding debts are typically paid before the remaining funds are distributed to your heirs.
Even if you don’t have significant debt now, it’s impossible to know what situation may surround your death. An accident or a sudden illness could result in medical bills and other expenses piling up quickly, and if you’ve designated a beneficiary, the proceeds of your life insurance policy may be more accessible to help your loved ones cover those costs.
#3: Not owning enough life insurance
Take an honest look at your family’s current expenses and estimated future expenses (e.g., college tuition). If your life insurance policy isn’t sufficient to support the life you’re building for your loved ones, even if something should happen to you, consider purchasing additional coverage.
About 60% of Americans own some form of life insurance, which is great. What’s not so great, however, is that 1 in 3 of those people think they may need more coverage…and they’re right. There’s an average gap of about $200,000 between the life insurance coverage we have and what we may actually need.
One factor that could contribute to this deficit is that if someone has group life insurance through their work, they may be less likely to seek out additional coverage. However, employer-provided life insurance plans often aren’t enough to cover a family’s needs, and if you change jobs, you may lose that benefit entirely. So it’s a good idea to supplement with an individual policy to help make sure the people you love are better protected.
If you’re not sure how much coverage you need, start by using a life insurance calculator to get a general idea, then chat with an insurance expert to fine tune. Keep in mind that your needs may change as your family grows or circumstances change, so it’s a smart move to do an annual review to make sure you still have the right coverage in place.
#4: Putting off life insurance until you’re older
Apply for life insurance while you’re young and healthy to lock in a better rate…and start helping to better protect your family.
Some people wait until they’re married to think about life insurance. Some wait until they have their first child. Some wait even longer…and about 40% of people haven’t gotten around to it at all.
While it may be tempting to put off getting life insurance, it’s actually a really good idea to consider coverage while you’re young. Maybe you’re single, but if you have private student loan debt, life insurance could help better protect your parents from the burden of repaying it if something tragic were to happen to you. Maybe you don’t have kids, but if you own a home with your partner, life insurance might help ensure they’d still have the ability to pay the mortgage if you suddenly weren’t around.
In addition to the fact that it’s never a bad idea to start better protecting your loved ones’ financial future sooner rather than later, age is a big factor in determining how high your premiums will be. If you purchase a 20-year term life policy when you’re 30, you’ll lock in that rate until you’re 50 as long as you keep up with your payments.
So on that note…DON’T WAIT! You can get started right here, with a free quote.
We’re here to answer any questions you may have, guide you through the entire process, and help you steer clear of as many bumps in the road as possible. We’d love to welcome you to the OLC family!
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