Life insurance is an important investment, not just for wealth accumulation but also for financial security. People take out life insurance keeping the interests of family members and dependents in mind. Even in tough times, it would be unwise to contemplate canceling your life insurance policy to save money. Those who feel that life insurance policies are unnecessary or a burden should know that life insurance is a good investment as well as a sound savings scheme. Here are some life insurance mistakes that you should avoid.
Not talking about life insurance
People generally tend not to talk about life insurance as it evokes the uncomfortable topic of death. But you have to be prudent when it comes to your finances and openly discuss life insurance with your spouse or dependents. After all, it is your duty to offer dependents financial support when you lose the capacity to earn income.
Not knowing enough about life insurance
Majority of the people think that life insurance should cover only the funeral expenses with only a few believing that life insurance is meant to support the family in case of the earning member’s death. There are also those who are surprised to know that life insurance (not just workplace life insurance policy) can pay seven to eight times their salary.
Still believing in old rules
The “seven times income” rule that people follow is old and outdated. Everyone doesn’t need insurance that pays seven times one’s income. For example, a person with no dependents will require much less than a person with more dependents.
Life insurance is very expensive
It is a myth that life insurance is an expensive investment. There are various types of life insurance and it is not difficult to find one that suits your budget and needs. Permanent or long term insurance is a little expensive while term insurance or temporary insurance is affordable and insures you for a specific period of time.
Forgetting to update your insurance
Remember to update your life insurance policy if you have one, because financial problems will cripple your dependents in the event of an unexpected tragedy.
Forgetting about the long term prospects
Before obtaining a life insurance always calculate the payouts that will be required to support your dependents. For example if you have child who is 10 years old, it is advisable to obtain insurance that has a term coverage of 15 years.
Not taking into account your non-monetary income
People tend not to take into account health insurance (for self and family), retirement account payouts etc when calculating the income the insurance payouts would have to replace. In the event of your death, your employer will stop paying costs of health insurance and your dependents have to take out a new health insurance. In such a scenario, your life insurance should be able to provide the costs of a new health insurance.