The 10 Biggest Mistakes
People Make When
Procuring Life Insurance

1) Buying the wrong amount. This is by far the most egregious mistake. Life insurance is a financial asset designed to replace an income or liquidate a liability. While it isn’t advisable to buy more than you need (the insurance company won’t issue an amount that they deem too high), it is better to err on the conservative side.

2) Treating it as a commodity. Even term insurance, which has a relatively simple cost structure, has too many other important features to just go with the lowest premium.

3) Thinking all agents are the same. Not only do some agents understand life insurance much better than others (and can explain it better also), but the integrity factor cannot be underestimated.

4) Thinking all companies are the same. Many companies specialize in niche markets, but even the ones in similar markets can have widely divergent products.

5) Thinking all underwriting is the same. Not only do different companies look at the same maladies differently, but a professional agent should be able to find out which companies look most favorably on your issues.

6) Thinking that they won’t need insurance at some point in the future. While this may be true, experience doesn’t bear it out. While the need for insurance will probably decrease in the future, the odds of it being eliminated are slim.

7) Naming the wrong owner. The owner has all rights to an insurance policy, including changing beneficiaries and taking a loan. However, the face amount of an insurance policy is included in the owner’s estate, so if the owner’s estate is already subject to estate taxes, he probably should not own the policy, since that would exacerbate the estate tax situation.

8) Naming the wrong beneficiary. Many people name their minor children as beneficiaries of their life insurance policies, not knowing that most states prohibit the payment of life insurance proceeds to minors.

9) Choosing the wrong payment mode. All life insurance policies are priced on the annual premium. Payment of the premium by another mode (semi-annual, quarterly or monthly) involves an interest charge, which can be as high as 8-10%.

10) Selecting an inappropriate dividend option. While technically there is no “right” dividend option, there is an “appropriate” dividend option that will best suit the insured’s objectives.

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