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Top 7 Mistakes in Buying Life Insurance
When most money conscious consumers start to think about buying life insurance these days, they instantly think "term insurance."
This type of life insurance; provides a coverage for a specific amount of period, usually 10, 20 or 30 years, is usually cheaper than "whole-life" or permanent insurance. The main reason: Term insurance only pays out if you die, while permanent insurance can be included as an investment or savings account component. Term insurance is also fairly simple to buy and is easy to shop for on the Web.
Although it is still crucial that you understand just what you are buying when you shop for term life insurance. Even an inexpensive policy, if not designed to meet your particular financial needs, still can be money down the drain.
The following mistakes are the seven most common that insurance agents say consumers make when buying term life insurance online or offline.
1. Choosing term insurance solely because it is cheap.
2. Not understanding that term insurance is temporary.
"Term insurance has become the more popular product, but there are still situations in which whole-life insurance policies are more appropriate," advises J. Derieck Hodges, C.I.C., Ch.F.C., of Albrecht-Hodges Inc., in Cape Girardeau, Mo. "If, for instance, you have a disabled child, you may need to insure yourself and your spouse throughout your entire life, so there will be money available for the child's care after you die."
In that example, a 30-year level-term insurance policy you bought when you were 30 would expire when you are only 60. At that point, you still would want to carry insurance, says Hodges, but your age and health conditions might make it impossible or very expensive to do so. In that case, permanent insurance might have been a better choice, he says.
3. Buying from a less-than-stable insurance company.
You can also check a company's financial standing through Standard & Poor's and Moody's ratings. "An insurance company should be very quick and willing to share their ratings with you, as well as information about who owns them," says Sam Bennett, C.I.C., a partner in the Columbia, Mo., Harrison Agency Inc. "If they aren't, walk away."
4. Buying insurance coverage based on a set formula.
While this formula isn't a bad place to start, Hodges is a bit leery of "cookie cutter" financial analysis. "A good agent can quickly do a solid needs-assessment for you, looking at your expected timeline and your financial needs to come up with a reasonable amount of insurance," he says. "Everyone's needs are a little different, and you don't want to buy too much or too little insurance."
5. Insuring a young child.
Some parents think they should have insurance to cover burial costs if a child dies prematurely. However, most agents suggest you instead invest in a good stock mutual fund. That way, you can use the investment proceeds for positive needs such as college funding, rather than just for death costs.
6. Buying insurance from a pushy agent.
As always, the best way to find a good insurance professional is through referrals from friends or co-workers who are satisfied with their agents. Arrange face-to-face meetings with two or three agents and pick a professional who listens well, explains products thoroughly, doesn't appear to be "pushing" a particular product or company and with whom you have a good rapport. Remember: This may be the person who helps your family with your claim if you die.
You can also shop for term-life insurance polices online.
7. Failing to regularly review your policy.
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