|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.
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.
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.
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.
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.