Don’t make these 4 Life Insurance mistakes!

01 May 2015

Buying life insurance is a big decision, and one that should not be held lightly. I often ask clients the question, “If life insurance was FREE, how much would you own?” The answer I often get is, “Well, as much as I could!”  This tells me that people believe in life insurance, but don’t want to PAY for it! Like all insurance, it is best to approach the matter in a way that can best fit the unique situation and look at all the options. Here are my four mistakes to avoid:

1) Automatically buying term insurance.

With life expectancies longer than ever, the cost of term insurance has never been cheaper.  However, some people may need insurance coverage for longer than the 20-30 year term. Estate tax planning for the wealthier in our society would often mean insurance that needs to be on the books forever. Term insurance won’t normally work in those scenarios. Often two policies can accomplish this. Your financial professional can be a great guide in this discussion.

2) Buying purely off an illustration.

If you decide on permanent insurance, often an agent will use a hypothetical illustration. Unfortunately, they are often presented as fact. This could not be further than the truth. The interest rate that is used tends to differ greatly from what is actually earned. For example, I recall seeing an old presentation from an agent in the 1980s and double digit interest rate assumptions were used! With rates in the lower single digits today, imagine what would have happened to that policy 25 years later. Not good.

3) Buying off of price alone.

Although price is important, the quality/ratings of the carrier, in my opinion, is equally if not more important. There are many rating agencies like AM Best and Standard and Poors to help in assessing the quality of the company. Don’t just buy on lowest cost alone.

4) Dropping your policy prior to putting your new one in force.

NEVER drop a policy until you have your new one in force and delivered by your agent.

Speaking with a qualified financial professional can help as you decide on which options are best for you

Good luck! Jeff

Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a Broker/Dealer, member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Cambridge and Premier Investments of Iowa are not affiliated.

Share

Jeffrey Johnston

Jeff has over 30 years of experience in the investment industry. He currently holds his FINRA Serices 6, 63, 66, 7, 24 & 51 licenses with LPL Financial as well as his health and life insurance licenses.