3 Costly Mistakes You Are Making on Life Insurance
1. Blindly Auto-Renewing Your Policy
My life insurance is bundled with my homeowners and car insurance for the best deal in premiums. So my insurance policies renew every six months, and the personal property insurance recalculates the premium every six months as well. The price I pay fluctuates a little bit every time.
But is this the best price for life insurance? Of course I'm a little bit older, but I've also worked hard to lose weight. I've been working out with a personal trainer. Could I negotiate a discount if I simply do not blindly renew my life insurance policy? It may be worth a call to my insurance company to find out.
2. Not Re-evaluating Your Coverage
You should re-examine your coverage either every year or every couple of years at the very least. It is imperative that you update life insurance coverage when your life changes.
"Life insurance is a key foundation for any long-term financial plan," says Michael H. Baker, a certified financial planner with Vertex Capital Advisors in Charlotte, North Carolina. "It's important that you review your coverage any time there is a significant life event. You want to be sure that your current coverage can replace that lost income if something unexpected happens to you or your spouse."
"While I don't think it's necessary to get new life insurance quotes every few years, I do think it's important to review the amount of coverage you need even more often than that," says Scott Halliwell, a certified financial planner with USAA. "Typically, I say to check to see if you have enough coverage at least annually, or with any major life events like the birth of a child, marriage, divorce, new home purchase, etc."
Halliwell favors adding to your existing coverage, rather than buying a new policy. "Every situation will be different so it wouldn't hurt to check both ways. In my experience, people often have too little life insurance, not too much," he says.
No matter which option you choose, ensure that you wait until your new life insurance policy takes effect before you cancel your old policy. You don't want any gaps in your life insurance coverage.
3. Not Getting Multiple Quotes
Nothing good comes from settling on the first offer that comes your way. Ask my friend who accepted a bad offer on refinancing his home. There is a reason that the government requires three bids on almost every contract.
You're better and safer in numbers. If you want a good deal on products and services, life insurance included, you need to get multiple quotes.
%VIRTUAL-article-sponsoredlinks%"It is essential that you get multiple quotes when purchasing life insurance as prices can vary widely for essentially similar benefits," says Todd Tresidder, financial coach, author and publisher of The Financial Mentor. "The reasoning behind the shopping process is intuitive to anyone who has hired a contractor, purchased a home or bought groceries. You must be a savvy consumer by getting multiple quotes and reading the contracts to get the best value for your money."
Do not settle on the first offer or quote for, not only premiums, but benefits as well. You should read all of the clauses in your policy. You should understand exactly which perils that the insurance company will pay out to your beneficiaries. While price of the premiums may be the same among many policies, the terms and clauses may be the differentiating factor.
You could be overspending and leaving savings on the table by blindly renewing your life insurance policies.
How often do you get quotes for new life insurance policies? Do you just blindly renew your policies? Are you leaving money on the table doing that?
Hank Coleman is the publisher of the popular personal finance blog Money Q&A, where he answers readers' tough money questions. Follow him on Twitter @MoneyQandA.