What to avoid when buying life insurance?

Common mistakes to avoid when buying life insurance.

with input from Derek Wolf, Founder | Senior Field Specialist

Last updated: December 15, 2022 | Article published: March 20, 2022

We have all heard that we should buy life insurance at one point in our lives but like many say, it can be confusing, but it is an important process to help protect your loved ones. Here are some of the most common mistakes to avoid as you navigate how to buy life insurance:

Not buying any insurance at all.

Financially protecting your loved ones is what life insurance is about. Most think that nothing will happen and that there is no need for insurance. Sadly, there are many families in the U.S. don’t own any, or enough, life insurance. A lot of this is due to the misconceptions of the expenses individuals have towards life insurance..

LIMRA data shows that *1:

  • 46% of U.S. households don’t own any life insurance.
  • 44% would feel the financial impact within six months if the household’s primary wage earner passed away.
  • 28% would feel the impact within one month.
  • Half of the millennials surveyed thought a policy that costs around $160 per year would cost $1,000 or more.

Life insurance can be relatively inexpensive. For example for a basic policy, on average, a 50-year- old male nonsmoker in good health can get a $500,000, 20-year term life insurance policy for about $160 per month. A healthy female could pay on average just $119 per month.*2

Not buying enough insurance

Determining if you have the right amount of life insurance to support your loved ones is as simple as trying this quick trick to see if you do.

Here’s an example of how to buy life insurance with an estimate for a $100,000 policy. First, cut it in half. The result is $50,000. Then, drop a zero. You get $5,000. That remaining amount is how much money your beneficiaries might be able to have in annual withdraws from the policy’s death benefit. If

$416 per month won’t be enough to provide for your family, then $100,000 isn’t enough insurance.

Buying the wrong policy

There are different types of policies and they can be divided into two categories: “Temporary” and “Permanent” coverage. If your goal is to get the insurance you need at the lowest possible price then you would look for a “term” policy. Term policies can have a term length of 10-30 years and allows you to lock in the price for the specific term. Some carriers even offer a ROP (return of premium) on their term products. Having a ROP attached to your policy means if you were to outlive that policy length you can opt to receive either a %50 or %100 of the premiums you paid into it to come right back to you after the term length. Term policies can be a great option for most people because you likely won’t need the policy after the term is up – for example, after the kids are grown and you’ve retired.

But that’s not always true. In many cases, you’ll need to maintain coverage for your entire life (ex, as part of your financial plan). and term insurance becomes more expensive if it’s held after the term limit is reached.

If you need insurance for a longer period, you should consider a type of “permanent” life insurance like a whole life policy that provides coverage for your entire life. You might pay more for this in the early years of holding the policy than you would for term insurance, but it generally becomes more economical over the life of the policy.

You may also consider a “indexed universal life” and other types of insurance, which attempt to merge the features of a term and whole life policy. These policies allow you to accumulate a cash value which has a compounding interest value on your cash value within the policy. These policies can potentially allow you to supplement your retirement, acquire a higher death benefit in the later years while allowing you to have a flexible premium throughout the policy length.

Now you might also find yourself needing more than one policy – some providing temporary coverage like term insurance, and others offering permanent protection.

An Howling Wolves Financial Services advisor can help you determine what type, or combination, of insurance might be best for you. *Link to connect with a planner

Not comparing rates

 Life insurance prices are based on probabilities of death, and every insurance company uses different data to assess your risk. Most insurers charge more if you smoke, but many have different views regarding other habits or medical conditions. For example, some won’t insure people who skydive, while others merely charge more. It’s important to shop around when buying life insurance – just as you would for any major purchase.

At Howling Wolves Financial Services, all advisors are independent brokers who act as fiduciaries on your behalf to bring you comparisons of rates of all the Top Rated AM+ carriers we represent.

Buying the cheapest policy

A common mistake individuals wake is a flip of the prior one. When individuals do shop for other rates from carriers, they often select the company offering the lowest price. But that can be costly if the insurer goes out of business or is unable to pay the benefit you’re paying for.

Therefore, it’s important to examine the insurer’s ratings and its “claims paying ability” as part of your process for buying life insurance.

At Howling Wolves Financial Services, all advisors are contracted with the nation’s Top Rated AM+ carriers who have a proven history and ratings to ensure that you are properly covered.

Thinking the purchase of life insurance as a one time activity

 With every level of financial planning, the ongoing process of evaluating your life insurance needs should evolve as your life changes. With time, you might get married, welcome a new child, say goodbye to a loved one, or buy a house. Your health, changing of jobs, and heirs can all change. A policy purchased 20 years ago might of been perfect at the times, but the benefit may not be what you need today.

Over time, you might get married, welcome a new child or say goodbye to a loved one. Your health, income, occupation and heirs can all change. So, a policy purchased 20 years ago might have been perfect at the time, but its benefit may not be what you need today. You should review your insurance needs every few years and anytime you experience a major change in your life, just as you would review your financial plan or revise your will.

At Howling Wolves Financial Services, all advisors do complementary portfolio reviews to ensure you are on path with your financial plan.

Canceling a policy before obtaining a new one

 If you review your financial plan and determine that your insurance needs need replaced and updated with a new policy. So if you’re going to replace a policy, don’t cancel the old one until the new one is in effect. You don’t want to be without coverage. Even for a single day.

  1. Stafford, (2020, June 16). 2020 Insurance Barometer Study, Life Happens and LIMRA. Retrieved on December 13, 2021, from lifehappens.org
  2. Quotes for Sales Professionals:2022 Rates by Age, Term, and Face Mutual of Omaha. Retrieved on December 15,2022, from mutualofomaha.com