Mistakes People Make When Buying and Using Life Insurance

A life insurance policy is necessary, especially if you have a wife, kids, or anyone who depends on you for financial support or if you want to leave money behind for your end-of-life expenses.

This article outlines six mistakes to avoid when buying a life insurance policy.

1. Naming the beneficiary of their life insurance as your estate

The life insurance proceeds will be subject to probate if the owner or insured of the life insurance policy names his or her estate as the beneficiary. The insurance proceeds could be subject to the state inheritance tax if the policy owner passes away in a state with an inheritance tax, even though they shouldn’t be.

Additionally, by designating your estate as the beneficiary, the life insurance proceeds may become fully accessible to creditors. This will be the case even though the laws of the majority of states exempt the proceeds of life insurance payable to designated beneficiaries, such as a spouse, child, or sibling, in whole or in part, from the claims of creditors.

2. Forgetting to specify contingent beneficiaries

When a life insurance policyholder dies, the life profits are distributed to the policy owner’s estate if they have only designated one beneficiary and that beneficiary survives them both.

This will unnecessarily expose the estate to all the issues described in Error #1. The answer is to designate dependent beneficiaries who will take over as the primary beneficiaries if the original beneficiary passes away.

3. Failing to review one’s life insurance coverage often enough, at least every three years

Numerous life insurance plans have a previous spouse or other people that the deceased policy owner/insured would not have wanted to receive the life insurance proceeds listed as beneficiaries. Children born after a life insurance policy was purchased, frequently unintentionally, were not added as beneficiaries, and have also been covered by life insurance plans.

As a policy owner or insured, it’s vital to routinely evaluate your life insurance policy for the following things to ensure that these kinds of incidents do not occur:

(1) Who the listed beneficiaries are and that they are still alive; and (2) that each beneficiary will receive the life insurance policy money in a way that best suits their needs.

4. Choosing the wrong life insurance coverage

Most people purchase short-term (less than ten-year) life insurance policies that expire just when they need them most. If a life insurance policy fails to function when it is most needed, how can it offer the “peace of mind” it is supposed to?

Individuals considering a life insurance policy should consult a competent life insurance specialist to determine if they are applying for the appropriate type and amount of life insurance (term or permanent life insurance), given their needs and circumstances.

It should be noted that new life insurance plans that were not feasible or explored in previous years are now available if a person is considering replacing a present life insurance policy. These policies may be more suitable than your current insurance policy for your everyday needs and situation.

5. The life insurance policy’s face amount is insufficient in light of the covered family’s financial security goals

The basic requirements of a family are food, clothing, housing, and education. The parent who is the principal (and maybe the only) wage earner for the family must ensure that, in the event of death and inability to support the family, he or she is insured for enough to cover all of the family’s future primary needs. Therefore, it is crucial to consider if your loved ones will have enough money to cover debts and living expenses once you pass away.

A needs-based insurance analysis based on income should be carried out if you are looking to purchase a policy primarily to safeguard the income of your family members. It is crucial to thoroughly study your assets and your family’s needs in the event of your passing to get the appropriate amount of life insurance.

6. The life insurance policy lists kids or grandkids as beneficiaries

One of the most dangerous estate planning mistakes is the inappropriate distribution of assets. This happens when the wrong financial asset is transferred to the wrong beneficiary at the wrong time and in the wrong way.

Children always have a variety of needs. 

Relevant queries include: Should they share equally in the life insurance proceeds?

Do they possess the knowledge and sophistication necessary to invest the life insurance proceeds wisely? It’s a mistake to list a small child or grandchild since no insurance company will give money to minor children or grandchildren. If this were to occur, a guardian or custodian would need to be chosen (at the children’s expense) to give them their share of the life insurance payout.

Creating a trust in the name of the child or grandchildren and designating the trust as the beneficiary of the life insurance proceeds is the advisable and less expensive method.

Contact Information:
Email: [email protected]
Phone: 9568933225

Bio:
Rick Viader is a Federal Retirement Consultant that uses proven strategies to help federal employees achieve their financial goals and make sure they receive all the benefits they worked so hard to achieve.

In helping federal employees, Rick has seen the need to offer retirement plan coaching where Human Resources departments either could not or were not able to assist. For almost 14 years, Rick has specialized in using federal government benefits and retirement systems to maximize retirement incomes.

His goals are to guide federal employees to achieve their financial goals while maximizing their retirement incomes.