Seven Life Insurance Mistakes You're Probably Making

US News lists seven life insurance mistakes you're probably making as follows:

• Thinking you have enough. In a recent survey of middle-income Americans, Allstate found that while respondents agreed everyone should have some level of life insurance, most believed that it should primarily cover bills and funeral expenses. Only two in ten said life insurance should replace the income of the person who died, in order to continue to support any children and other dependent family members.

• Not talking about it at all. "It's a topic that nobody really wants to think about," says Matt Easley, vice president for Allstate Financial, partly because thinking about death is so uncomfortable.

• Relying on old rules of thumb. Traditionally, people relied on a standard "seven times income" rule to calculate how much insurance they need. But that's not a useful measure, says Easley, because people's situations are so different.

• Ignoring your non-monetary income. Many people, when adding up how much of their income they would need to replace, forget about the benefits that come with their job, such as health insurance and retirement account payments.

• Forgetting the long-term. People often lose track of how long the life insurance payout should support their children and other dependents after they die.

• Thinking that it's too expensive. Many people mistakenly think life insurance is prohibitively expensive, says Bonvento, but it's possible to find a policy that fits your needs—and your budget.

• Forgetting to update it. While major life events, such as the birth of a child, marriage, or divorce, usually mean it's time to update your insurance policy, many people forget to do so.

Here's what I do regarding each of these:

• I personally advise people that they should look more at costs than income when setting life insurance amounts. For instance, my family can live on much less than my annual salary, so we bought our life insurance based on what they'd need to replace their current standard of living in case anything happened to me. We did NOT base it on my salary.

• I need to do a better job of "talking about" life insurance with my wife. For that matter, it's still "on my list" to write down where all the key records are for her in case anything happens to me.

• Yep, personal finances are personal. It's great to give rules-of-thumb (I do a lot of this) but every situation is different and people need to take these rules and personalize them to their situation.

• Yet another reason that it's better to calculate your needs based on expenses rather than income.

• Of course. You want your life insurance to last until you no longer need it. I think ours lasts until I'm approaching 60 and our youngest child is 25 or so (giving us a good cushion to get the kids through college and out on their own a bit -- not to mention plenty of time to build up our asset base.)

• Life insurance is not very expensive at all (if you want to talk expensive, then let's talk about disability insurance -- but you still need that too). I spend on life insurance annually about what most others spend on cable TV in a year. Seems like a good deal to me.

• We updated our life insurance with the birth of our last child and haven't had a reason to update it since then -- though we would if we'd need to.

Comments

[Jadzia]

One other hangup I think people have? The medical exam. I avoided getting life insurance for YEARS because I was terrified that the blood test would reveal some dread disease. After having my first child, I put on my big-girl pants and just did it. No dread disease here. But I'm sure I ended up paying more for my term insurance than I needed to because I was in my 30s by the time I bought it.

[chynalemay]

Getting "CONVERTIBLE" level term when young (so some of it can be made to whole life later in life w/o proof of insurabilty) is a smart (!!) business decision. If you don't "need" life insurance now (example: young single/dinks w/ 2 incomes but spending only one, etc., ..) STILL GO get a small amount of straight whole life WITH a guaranteed insurability rider
(GIO), THAT allows you to buy insurance every 3 years w/o proof of health (we don't get healthier as we get older and MANY folks can't get standard rates in theor 40's and beyond, look it up!!), my story: I'm a disabled vet @ 46 that can not et standard rates anymore (age 49), however, I had a small amount of whole life (modest premium that was cheap buying in my 20's and early 30's, money I never missed..), it allowed me to buy more at standard rates (that GIO rider paid off!) even with my veterans disability and today my older policies are over 50% paid up (I can STOP paying premiums and I still have a modest growing cash value (if I want the $$) but, more important (!!); a level death benefit FOREVER; for final expenses, cash at time of death until estate is settled, to pay end of days last medical bills, etc., all those costs that still come soon after dying,... I'm done paying premiums before age 50! Convertible term and/or a small amount of whole life w/ term rider or that GIO rider makes SMART BUSINESS SENSE. I'll never regret starting that WL at age 26! Thanks to my agent for convincing me! My heirs will get tax free $$ for literally pennies in "costs", NO investment could've done that!

[Ray]

From my experience in the industry, not talking about it is the biggest issue. Whenever i would bring up that topic clients would try to brush it off to the side.

[abc123]

So at what "stage of life " is "Life" insurance not needed anymore?

Our kids are now working adults, my wife has an independent and very successful career, I've got a great retirement nest egg and an emergency fund covering 12 months of living expenses. I carried a term policy when the kids were young, but not anymore.

Also when is Life insurance "dumb"? (insuring children comes to mind).

[chynalemay]

You'll need some available lump sum $$ at death: funeral, hosp bills, reregister assets, change of lifestyle, wait till other $$ (invstments, SSI, etc., lossof one social secutiry check, etc., )..so either a) "put aside" money you can't spend now, nor later OR b) (see above) a small amount of Whole life that WILL be there to provide those $$ (no worry about a down market - losses, or an up market - taxes) will do to provide those $$ mentioned,...and: a child rider on your policy, ...that allows "guaranteed insurability" as children become adults for your children would be CHEAP and worthwhile, why: about 1 in 7 (YES) children are uninsurable now (weight, asthma, etc., etc.,) that rider allows THEM to get standard rates as adults, I spent 16~ years as a financial planner, and knew life insurance FIRST, investmenyts come SECOND (and after SAVINGS so third really for investments)...and insurance (parmanent anyway, you may outlive term if that's all you got) ALWAYS pays, investments: well... people stop investing, spend it, make foolish decisions over aggressive-think they can do it w/o a pros help, etc.,), most folks just are not successful investors, etc.,) so get that convertible term, small amount of whole life and a child rider! and save/invest starting w/ 10% no matter what but, plan on 15-20% minimum of your gROSS pay for years and LIVE below your means..cut teh cable/cell/eat out budget, drive oldr ccars longer, turn down the t stat, shop carefully (goodwill, sales) and NEVER carry unscured debt, THAT ALL works!

[Ken]

The amount we need definitely varies from family to family. I'm going to revisit our life insurance once our house is built.

[Pat]

Other than the life insureance paid for by my employer which I have nothing to do with, I have no life insureance of my own. It would be a waste of money since I am single with no dependants. When I die, no one will miss my income.

[Richard]

--I spend on life insurance annually about what most others spend on cable TV in a year.

Is that statement accurate? I don't think that's going to convince anyone....My cable TV is expensive :(

Having said that, I'm Single with no kids, so short of making my parents rich, I have little use for any sizable amount of LI

[jeffinwesternWA]

Get an antenna and the tv is free, better pic quality and lots of DTV selection, put the difference saved into your investments/insurance . At least get some WL coverage w/ GIO for the FUTURE, you'll be glad!

[rxjohnk]

I'm probably in the minority on this blog, but I have life insurance policies that will help ME out while I'm ALIVE! This idea always seems to be pecked on by naysayers when brought up on this blog, so I won't go into details, but I use my life insurance policies to provide my finance needs and avoid tax when possible.

Life insurance can be a valuable estate planning tool also, even for people well into their 60's and 70's that have no real NEED for insurance. A good life insurance policy can provide more cash for your heirs than NO life insurance, because the proceeds are TAX FREE, unlike other inheritance money.

Here's my score sheet:
1. Have Plenty. 20 times income for both of us.
2. Talk about it about annually. My wife and I agree on whether or not we need to increase our policies.
3. Same as #1? We rely on our plans, not what someone else tells us.
4. We take into consideration cooking, cleaning, child care (no kids yet though), yard maintenance, rental property management, etc.
5. All of our planning is for the long-term.
6. Expensive maybe, but priceless too. I have term and whole life policies (and I probably pay more in commission what I pay for cable TV every year, but I am the one who gets the most benefit.
7. We have changed our insurance 3 times in the last 4 years to meet our changing needs.

[TStrump]

I only recently got life insurance for myself - I have no kids or anything like that.
I decided I would want to leave something for my remaining family members to hopefully, help with the grieving process.
Assuming I'd be missed of course! ;)

[Denise]

Yes, its important to realize that life is never static. As you move on, with each change, you may find that your financial needs evolve as well. It’s important to ensure that your life insurance keeps up with the changes in your life. You should review the coverage of your policy on a regular basis to ensure that all of your goals and objectives are still being met. Experts recommend reviewing your existing policy every few years or whenever a life-changing event takes place. A proper policy review can also help ensure that your coverage is in keeping with your financial goals and obligations, your interests as well as your beneficiaries have been kept in mind, your beneficiary designations are current and up-to-date, and your policy is cost-effective for your individual situation. By scheduling an annual policy review appointment, you could save yourself a whole lot of time, effort and money. And remember, it’s better to discuss all your options and talk frankly with your agent as you may just end up with a better deal than before.

Disclaimer: I work for AccuQuote and this is my personal opinion.

[Luke]

@abc 123

There are times when life insurance is "dumb" or more accurately not the best use of funds. However insuring children is not one of those times. Especially is parting with 7,000 - 10,000 on top of the life of a child is something you are comfortable with. Also most policies on children offer the availability of guaranteed insurability for them later in life. So if they were to become uninsurable they could still be eligible for more insurance later in life.

I am an insurance agent and last week I had to deliver a benefit to a family who had just lost their 19 year old son. nothing can replace the loss of a child but adding a financial burden on top of the loss won't improve the situation.