What’s the biggest life insurance mistake a parent could make?
Not buying it at all.
But that’s often the case with busy parents trying to juggle the demands of life with young children. Life insurance is a critical component to protecting your family, though, and the longer you wait, the more expensive it will be.
“It’s so important to do it now,” says Nicole McCoy, an agent with Michigan Term, a life insurance brokerage firm in Troy that caters to families. “It doesn’t take long. I can get figures and quotes within a 20-minute period. Is 20 minutes too much time to ask to secure your family’s financial future?”
Purchasing life insurance is the first step. After that, parents should know that several common mistakes could stop them from maximizing the benefits of having life insurance.
- Having a child beneficiary. “Having a minor child as a beneficiary is definitely a problem that you see in the industry,” McCoy says. A child can’t receive the funds until they reach legal age, which means the money is handled by a guardian until 18 when they receive all of it at once.
- Not electing a contingent beneficiary. People often forget to update their beneficiaries when one of them dies. “Life happens, things change and people forget to update their beneficiaries,” she says. You should also elect a contingent beneficiary – an option offered on all policies – in case both parents die at the same time. “A lot of times the money goes to the estate and is subject to probate court decisions and fees,” McCoy says. “People aren’t using their additional beneficiaries.”
- Buying too little coverage. Parents should generally buy a life insurance policy worth about 20 times their annual income less any emergency savings. It sounds like a lot, but parents need to factor in things like college tuitions that they’ll want covered for their children. “Make sure you’re applying for your actual need in the event of a loss,” she says. “There is such thing as too much, but the majority are covering themselves too little.”
- Waiting too long to buy a policy. Life insurance is cheaper the younger you are. “You’re typically healthier when you’re young,” McCoy says. “A 30-year-old has more access to numerous policies,” but someone older may not, she says.
- Buying too short of a term. Life insurance will only get more expensive as you get older, so buy the longest term you can afford, McCoy recommends. “If you buy only a 10-year term, you’ll see premiums increase in 11 years,” she says. “You’re better off buying a longer policy because you’re getting more bang for your buck, even when it comes to permanent products. You’re locked in for the cheaper rate.”
- Not using a brokerage firm. A life insurance brokerage like Michigan Term lets you compare prices and policies between all the big-name insurance brands. Going straight to a company like Allstate or MetLife could be a mistake. “We have the option to shop you around where Allstate agents don’t, and may not have the best rates,” she says. “We’re in it for the client and not for the company.”
If you think you’ve made one of these mistakes, it’s not too late to correct it.
“Give us a call and we are happy to review your existing policy. We will let you know if any of these problems (or others) are occurring within your policy,” McCoy says. “We’re able to guide everyone to the best option for their family.”
For more information, visit Michigan Term online or call 888-242-9644.