Budgets and Planning

Mistakes People Make Buying Insurance

By Ginita Wall, CPA, CFP

(An excerpt from The Way to Save: A 10-Step Blueprint for Lifetime Security , by Ginita Wall)

A catastrophic loss can scuttle any financial plan, and bring your savings to its knees. You need insurance to protect yourself against medical costs, sudden loss of life, and loss of property or earning power.

Many people are mostly in the dark when it comes to insurance coverage. They worry that they are underinsured, but they don't think they can afford additional insurance, or don't know where to turn for answers to their insurance questions.

Many people don't trust insurance agents to provide honest information. They think that insurance agents live by the credo: "If you can afford the insurance you have, then you don't have enough."

Life insurance is important if your family depends on your earning power for their needs. You will need life insurance to replace your income and provide the benefits your current income now provides, including living expenses, education expenses and retirement benefits.

Life insurance can provide the funds to pay off debts, such as your home mortgage, in the event of your death. It can also provide funds to pay estate taxes and administration costs.

But not everyone needs life insurance. Here are six common life insurance mistakes that people make, spending their hard-earned dollars on unnecessary coverage.

Mistake #1
Buying life insurance if you don't have dependents. There are very few reasons why you would need insurance coverage if you are single and footloose.

Mistake #2
Buying life insurance on your children. Their deaths would be a tragedy, but you won't suffer financially if they die.

Mistake #3
Buying mail-order insurance unless you comparison shop for the best rates.

Mistake #4
Buying investment insurance, such as universal life or variable life, instead of contributing to your retirement plans. Retirement plan contributions are tax-deductible, while investment insurance is not.

Mistake #5
Ignoring disability insurance. Disability insurance is vital to your financial health if you or your family depend on your income. And at almost any age, you are five or six times more likely to become disabled than to die.

Mistake #6
Buying expensive riders on your life insurance. Riders, such as waiver of premiums, accidental death benefits, and additional purchase options, are costly and are often not worth the extra money.

At WIFE we welcome your comments. Please feel free to contact us.

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