Most Common Mistakes

Most Common Mistakes People Make Regarding Life Insurance

Life insurance protects against the risk that an insured person will die too soon and be unable to fulfill his or her obligation to others, such as debts, mortgage, and financial support to family. Therefore, when you buy life insurance take into account all your financial obligations to get enough coverage.

Buying wrong type of policy

This is one of those mistakes that individuals seldom realize. Common examples of buying wrong product are having too much or too less coverage, buying whole life insurance without the needs of estate planning, or using mortgage insurance to protect survivor needs. In order to buy the right product for yourself diagnose your current financial situation and calculate the right amount you need. Also consider your future goals and objectives before choosing a life insurance product.

Treating Life Insurance as savings
Instrument

Insurance products with cash value and investment savings have high administrative charges, usually 5-10% up front. Let’s say you invest $100 in an insurance product with 7% up front charges and promising 12%. You will only get interest on $93 ($100-7%=$93). Therefore, it will provide around 4.25% return which is less then promised.

Considering it a one time activity

You life insurance needs changes with your age and life style. For example, a married couple with kids and mortgage needs more life insurance coverage amount then a single person without any debts. Therefore, review your insurance needs if there is a change in your life, such as marriage, children, salary raise, or buying a home.

Keep in mind

Only buy whole life insurance if you concern about estate tax consequences at death.
Look for alternative investments outside insurance products such as mutual funds.

Harnek Singh Uppal (416) 723-3226