Four Mistakes To Avoid When Buying Life Insurance

Post by Sharat on May 7, 2009 · Under Featured Articles, Hints and Tips, Life Insurance, Self Help, Wealth Management, insurance, investments, personal loans · 1 Comment 

Life Insurance is one of the oldest types of insurance, its theory is fairly simple, individuals pay premiums, and payouts are made as death benefits. Since it is simple to understand it follows that it should be fairly simple to buy. Unfortunately that is not how the cookie crumbles, there are a myriad of life insurance products on offer. Being one of the oldest types also means life insurance is probably also one of the most sophisticated financial products out there with a myriad of types to suit every kind of need. When buying life insurance individuals need to ask three basic questions:

Whether they need the insurance to begin with

If they do need insurance, how much cover do they require

Where or from whom should they buy it.

Here are four mistakes to avoid.

1. Buying Cover That Individuals Do Not Need

Individuals who do not have dependant family members, spouses, partners or children, will find that in the event of their death, it is unlikely that anyone else is going to be affected financially negatively. What is more is that whilst debts cease with the death of the borrower, so if an individual has no dependants, there is no need to purchase to insurance to ensure that any outstanding debts have been covered.

2. Buying Insurance From Mortgage Lenders When Arranging A Loan

Another common mistake is buying life insurance from a mortgage lender or bank who is lending the individual money to buy a home. Banks like to cross sell a variety of products to their customers, and when individuals seek financing for the purchase of a home, they suddenly become a captive audience to the bank who is making the loan. The financial institution will try and add on a variety of insurance products in addition to the mortgage or loan they are making, and the deals on offer are almost always not the best deals that can be picked up were the individual to approach an insurance broker or a specialist.

It is better to buy life insurance from a specialist independent broker, largely because they have a better understanding of the products on offer, and how they compare to rival products and probably have a bigger offering.

Individuals should also not be afraid to make a broker work for their money and feel no pressure to commit. Brokers are commission driven and financial products such as life insurance offer amongst the highest commissions.

3. Ignoring Cover Offered By Employers

Buying more insurance cover than is required results in extra premiums. Individuals often fail to consider the death benefit provided to dependants which is offered by employers which can be as high as three to four times the annual salary before deductions. When individuals calculate how much they should leave their dependants they should be sure to include any cover be offered by employers

4. Choosing The Wrong Type Of Policy

Once an individual has decided upon buying life insurance the most common mistake that is made is choosing the wrong type of policy. For example someone who wants to ensure that their mortgage is paid in the event of their death should look at decreasing term insurance. If a person thinks they are going to live for a while but wants some kind of retirement benefit as well as a death benefit, should be looking at variable whole or variable universal life policies.

Individuals should consult a registered broker who can explain the different types of insurance available and help the individual choose the right type of policy for their needs.
Often individuals make the mistake of buying a single policy of joint life first death in order to cover two people. Though this seems to be convenient way to ensure that both spouses are covered, it is more flexible to buy to separate policies for each partner in the relationship or spouse in the marriage and results in two payouts rather than one.


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Comments

One Response to “Four Mistakes To Avoid When Buying Life Insurance”

  1. Quisenberry on July 30th, 2009 12:31 am

    Excellent site,Thanks for this great post – I will be sure to check out your blog more often.Just subscriped to your RSS feed….

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