Life insurance is a crucial financial decision for many individuals, and it's important to avoid common mistakes when purchasing a policy. Understanding the various features of life insurance is essential to fully benefit from its offerings. If you want to learn more about why life insurance claims may be denied, continue reading.
Experts in the life insurance industry have identified common mistakes people make when buying life insurance. Here are some examples:
Naming your estate as the beneficiary can lead to inheritance taxes, so it's advisable to avoid this practice.
Not naming at least two alternative beneficiaries may result in the money going to the estate instead.
Utilizing the premium waiver feature can be beneficial if the policyholder becomes disabled or seriously ill, as it covers the policy's premium payments.
Instead of directly naming children or grandchildren, setting up a life insurance trust is recommended.
Failing to review your policy at least every three years can lead to unintended consequences. Policies may be payable to ex-spouses or deceased individuals, while children born after the policy was purchased might be omitted.
Owning all the insurance on your life may have implications for federal estate tax if your estate exceeds the federal exclusion amount over time.
Inadequate personal coverage should be avoided to ensure that your survivors have enough funds after taxes, debts, and expenses for basic necessities and education.
Exploring if your employer, business, or practice can provide insurance more efficiently is crucial. Employer-provided life insurance may offer cost-effective financial security for your family if you have ownership or decision-making involvement in a closely or publicly held business.
Considering the accelerated death benefit feature is important in case of a terminal illness diagnosis. It allows the policyholder to access cash advances against the policy's death benefit to cover medical treatment and palliative care.
The guaranteed purchase option allows an individual to buy life insurance coverage at a specific future date or upon a significant life event without requiring proof of good health.
Spouse or child term riders enable a policyholder to add coverage for a spouse or dependent child under 26 years old, often resulting in discounted premiums compared to separate policies.
Some policies offer long-term care riders, which allow the policyholder to use the benefits to pay for long-term care services in exchange for a reduced life benefit.
Avoiding these mistakes and understanding the features of life insurance can help ensure that you make informed decisions and maximize the benefits of your policy.