Buying a life insurance policy is perhaps the easiest way to provide a financial safety net for your dependents in your absence. Choosing the right policy, however, is not an easy task, especially if you are buying life insurance coverage for the first time and have no idea what to look for in a policy.
Given below are four mistakes you must avoid while buying a life insurance policy.
1. Underestimating Your Life Insurance Needs
This is the single biggest mistake you can make when it comes to buying life insurance coverage. In the event of your untimely death, your family will have to depend on the proceeds from your life insurance policy for their financial needs.
If the payout is not sufficient, they might struggle to meet their short-term and long-term financial needs. Ideally, the proceeds from your life insurance policy should be sufficient to pay off your mortgage and other debts, replace your income for a period of time, and pay for your children’s education.
2. Choosing the Wrong Kind of Life Insurance
If you need life insurance only for a finite period of time, it would be a mistake to buy permanent life insurance, and vice-versa. The most purpose of life insurance is to protect your financial dependents. Once your mortgage is paid off and your kids are self-supporting, you might no longer feel you need life insurance. So, a term life plan which is designed to provide you with life insurance coverage for a specific period of time – anywhere from 10 to 30 years – might be the right choice for you. On the other hand, if you want to leave a tax-free legacy to your spouse, children or other dependents, term life is the wrong choice and should not be used unless that is all you can afford.
Permanent life insurance is designed to provide you with life insurance coverage until your death but requires a much greater cash outlay than a term life policy. Most such policies also have cash values that may be borrowed against as needed. There are many situations in which permanent life insurance is called for, including special needs children, a large mortgage, business buy-sell agreement, large estates that might incur significant estate taxes, and any situation in which one’s spouse is dependent upon their income.
3. Not Designating a Proper Beneficiary
The following mistakes should be avoided while designating a beneficiary for your policy.
- Failing to name a beneficiary
- Naming a minor child as the beneficiary
- Not naming a secondary or contingency beneficiary
- Not updating your policy after getting a divorce, marrying again, or adopting a child
- Not updating a policy when a beneficiary dies
- Naming a former spouse as a beneficiary in states where former spouses are disqualified from receiving life insurance proceeds
- Naming someone other than your spouse in a community property state without your spouse’s written permission
The aforementioned mistakes can lead to delays, litigation, claim denials and loss of all or part of the life insurance benefit by your intended beneficiary. In such cases, your intended beneficiary may have to hire a life insurance attorney to try to recover the proceeds from the insurance provider through negotiation, mediation, arbitration, or litigation. Disputes are usually resolved through interpleader litigation, which is time-consuming and very expensive.
4. Not Comparing Life Insurance Policies
The cost of a life insurance policy tends to differ from one company to another. In addition, each company has its own underwriting guidelines and features. This can be important if you have any kind of disease or disability if you are on medication for high blood pressure or cholesterol, if you have had heart problems or any medical or non-medical issue that could affect the underwriting of the policy.
In addition, all companies are not created equal. It is important to choose a company that is highly rated by the rating agencies. Why? Because you want to use a company that will still be there when it’s time to pay a claim. A. M. Best and Standard and Poors are the most commonly referenced to evaluate the financial strength of the company. You should not buy life insurance from any company not rated A+ unless you understand why you are doing it (the fact that is the cheapest is not a valid reason).
How a Life Insurance Lawyer Can Help You
If there is an unreasonable delay in processing your claim or if your claim is rejected by the insurer altogether, you need a good life insurance claims attorney who can represent you and negotiate with the insurance company on your behalf. If the negotiation or mediation fails, the attorney might be able to recover the claim amount you are owed through litigation.
Trustworthy Life Insurance Attorney in California
Whether it is mediation or litigation, Benjamin Blakeman of Blakeman Law is an experienced life insurance attorney ready to fight for a favorable resolution on your behalf. To learn how Blakeman Law can help you, call 1-888-270-0051 or complete our online contact form for a consultation.