If you already have life insurance, you’ve taken an important step to ensure your family is taken care of in case of an unexpected event. But just having it isn’t always enough. Do you have the right type or amount? Have you reviewed your policy lately?
These are the 5 most common life insurance mistakes people make.
1. Having the wrong amount of coverage
Over one third of households would feel the financial impact of the loss of a primary wage earner in one month or less.* Are you one of them? We generally recommend having coverage equal to 7-10 times your annual salary. For a more accurate amount, use our life insurance needs calculator, or “L-I-F-E,” to get a quick estimate. It will help you calculate your:
- Income replacement – how much your family will need for ongoing living expenses and savings needs
- Final expenses
- Education expenses for your children or grandchildren
- Plus, any additional amount you’d like to leave your loved ones or charity.
Once you have that number, compare it to your current policy amount and see how close you are.
2. Having the wrong type of policy (term vs. permanent)
Do you need insurance to cover you while you have a mortgage to pay or children at home? Or are you looking to build cash value in a policy that you can later pass on to your heirs? Each insurance type has its own advantages. Here are the basic differences:
Term insurance covers you for a specific time frame, typically less than 20 years. It’s the most basic, and affordable, type of insurance, which makes it a popular choice for young families who are balancing debt and saving for the future.
Permanent Insurance provides lifetime coverage and allows you to build cash value that you can later pass on to your beneficiaries. It’s more expensive than term insurance, but the premiums typically don’t increase with age.
Learn more about the differences between these two insurance types here.
3. Relying solely on employer-provided insurance
Life insurance coverage provided by your employer might be okay if you’re single and without kids, but if you have dependents and large financial obligations, it may not be enough. Employer policies rarely cover more than 3 times an annual salary (the general recommendation is 10 times your annual salary) and sometimes only cover as little as 6 months’ salary. Plus, if you change jobs, you can’t take your policy with you.
4. Neglecting to designate beneficiaries
Naming beneficiaries helps ensure that your insurance money goes directly to the people you intended, helping them avoid probate (the legal process of distributing your estate). This could save your family time and expense. If you have insurance from Edward Jones, your financial advisor can help you set up beneficiaries for your policy.
5. Ignoring your policies
Life insurance is an important part of your overall financial plan and should be reviewed at the very least every 3 to 5 years. If you’ve recently gotten married, divorced, welcomed a new baby in the home, or changed jobs it’s time to review your policy to ensure your coverage amount and policy type still work for your situation.
If you’d like to discuss life insurance, or have questions pertaining to your financial goals, consider calling Rob at his Kissimmee Florida office at 407.870.5464.