Eight Life Insurance Missteps (and How To Fix Them)

1. Putting it off. Buying life insurance requires you to pay for something you personally will never receive. The only immediate benefit is the peace of mind of knowing that your family will be taken care of. As a result, it’s easy to put off buying life insurance. This costs money, however, since life insurance premiums are based on your age and health. Corrective step: Make an appointment with your agent and stick to it.

2. Overlooking a tax break. Do you work for a company that offers group life insurance or a Flexible Spending Account (FSA) as a benefit? If your company offers an FSA, you can use pre-tax dollars to pay life insurance premiums, increasing your buying power 30-35%. Corrective step: See what your employer offers.

3. Making your estate your beneficiary. If you make your estate your beneficiary, you risk forfeiting a portion of your survivor’s death benefit to inheritance taxes. You also risk tying it up in probate court. Corrective step: Make a person your beneficiary.

4. Failing to name contingent beneficiaries. What if something happened to your and your beneficiary at the same time? Have you named contingent beneficiaries? If not, your death benefit would be paid to your estate, becoming subject to taxes and probate. Corrective step: Designate contingent beneficiaries.

5. Not setting up a trust for minor children. To avoid taxes and probate court, many people name their children, grandchildren, or other minors as their beneficiaries. Minors, however, rarely have the maturity to handle a large amount of money. Corrective step: Arrange to have the death benefit paid to a trust that will distribute the proceeds in payments, rather than in a lump sum.

6. Not keeping the policy up to date. Many changes can occur while your life insurance policy is in effect—marriage, the birth of children, divorce. These and other events can affect who you name as beneficiaries and back-ups. Corrective step: Revisit your policy annually on your birthday or another easy-to-remember date.

7. Getting too little coverage. Term and whole life insurance require you to estimate how much money your beneficiaries will need in the future (universal life allows you to adjust the death benefit depending on changing needs). Corrective step: Err on the high side. It’s better to leave your beneficiaries with too much rather than too little.

8. Outliving your policy. Term life covers a set number of years. When the term ends, the coverage ends. This is not the case with whole (and universal) life insurance. Term life is much less expensive than whole life, however, and you can use the saved money to fund other investments. Corrective step: Discuss your options with your insurance agent.

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