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Purchasing life insurance can yield a number of benefits, but most policies are purchased as a way to help your family financially in the event you pass away. As such, life insurance can be a valuable, if not vital, component of the financial plan for you and your loved ones.
Unfortunately, too many life insurance policies are bought without a sufficiently close examination of their terms. At best, these oversights result in people paying more than they should for a policy, or in buying benefits they don’t really need. Worse, of course, is such inattention resulting in less being left behind for the family, or even none at all.
Here are four all-too-common mistakes that can all-too-easily nullify your investment.
Underestimating how long you’ll live
It’s almost paradoxical, but thriving for longer than you anticipated may actually hurt the life insurance payout to your heirs. That’s because permanent life insurance policies, such as whole life or universal life insurance products, typically come with maturity dates that are tied to your age. When the maturity date is reached, the policy essentially expires and the insurer pays you a certain sum of money. With universal life insurance, for instance, the amount of money paid out is often the policy’s cash value, which can be modest due to slow investment growth or reduced by its use over the years to pay premiums.
With a growing number of people now living into their nineties, there’s been a rise in policyholders who are living past their life insurance maturity dates, since many policies were sold with coverage that ends at age 85. Life insurance is available with a maturity date of as high as age 121, but it may be difficult to impossible to extend an existing policy to an older age, and buying a new policy when you’re in your ninth or tenth decade of living could be prohibitively expensive, if you’re even able to obtain one.
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