lhia logo bar
Winter 2023  Volume 15, Number 4        


Five Life Insurance Don’ts: How to Avoid Putting Your Family at Financial Risk

Making sure your family is financially protected if something happens to you is one of the most important things you can do. That’s where life insurance comes in. But, buying a policy comes with potential pitfalls. Avoid these common mistakes when getting coverage so you don’t inadvertently put your loved ones at financial risk.

1- Don’t Wait Too Long to Get Coverage

Life insurance premiums are based on your age and health status. The older you get, the more you’ll pay for coverage. A 40-year-old may pay double what a 30-year-old pays for the same policy. Pre-existing medical conditions could also make you ineligible to buy life insurance at any price.

The best time to buy life insurance is when you’re young and healthy. This will lock in lower premiums since people in their 20s and 30s are less likely to have health issues that insurers view as risky.

You’ll also want to think about life changes on the horizon. Are you planning to start a family soon? That would make maternity care an important consideration. Will you be retiring in the next couple of years? Medicare eligibility may be top of mind.

2- Don’t Just Buy the Cheapest Policy

Term life insurance tends to have lower premiums than permanent insurance. But term policies only pay out if you die during the policy term, usually 10 to 30 years. They have no cash value.

Permanent life insurance is meant to cover you for life. It builds up cash value you can borrow against. While term insurance makes sense for temporary needs like covering a mortgage, permanent insurance works better for lifelong income replacement and wealth transfer goals.

Before choosing a policy based only on price, carefully weigh what type and level of coverage aligns with your financial situation and goals. The cheapest policy isn’t the best if it leaves your family under-protected.

3- Don’t Allow Premiums to Lapse

It’s critical to pay your life insurance premiums on time. If you stop paying, your insurer can cancel your policy, leaving your beneficiaries without payouts. This risk is especially acute with permanent life insurance policies that offer guaranteed benefits.

Missing just one payment on a guaranteed universal life policy could void guarantees that premiums will remain level. Letting such a policy lapse could mean losing lifelong coverage you counted on well before you die. Always pay premiums on time, and contact your insurer before the due date if you may not be able to make a payment.

4- Don’t Borrow Too Much from Cash Value

Permanent life insurance policies allow you to borrow from the built-up cash value. But borrow too much, and you may not have enough left to keep the policy active. This can trigger income taxes on withdrawals that exceed your cost basis.

Limit how much you borrow to preserve your policy’s tax benefits and ensure sufficient cash value remains to pay premiums if you become unable to make payments. Also, have a repayment plan so policy loans don’t cut too deeply into cash value.

5- Don’t Forget It’s an Investment

Experts consider permanent life insurance a long-term investment vehicle. Use it strategically by adequately and consistently funding your policy. Pay close attention to performance just as you would other investments.

Underperformance could shrink your cash value. Rebalancing periodically realigns your investments with your risk tolerance and time horizon. Don’t just set it and forget it. Actively manage your policy to maximize growth.

Please call our office for additional information or assistance.

[return to top]






In this issue:

This Just In... Can You Still Retire Comfortably in this Economy? Tips to Get Back on Track

Retirement Planning When You’re Your Own Boss

The Self-Employed Person’s Guide to Navigating Health Insurance

Five Life Insurance Don’ts: How to Avoid Putting Your Family at Financial Risk

New 401(k) Superpowers: How Your Plan Will Work Smarter for You




The information presented and conclusions within are based upon our best judgment and analysis. It is not guaranteed information and does not necessarily reflect all available data. Web addresses are current at time of publication but subject to change. SmartsPro Marketing and The Insurance 411 do not engage in the solicitation, sale or management of securities or investments, nor does it make any recommendations on securities or investments. This material may not be quoted or reproduced in any form without publisher’s permission. All rights reserved. ©2023 The Insurance 411. www.theinsurance411.com Tel. 877-762-7877.