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This should probably be the first mistake listed, because I see consumers make it all the time, and it is the mistake that could potentially cost you the most. Think about it, what is a bigger mistake:
1. you overpay for your policy by 40% but at least you get as much as you really need?
2. Instead of buying the amount of insurance that you need you settle for a lower amount?
Te second mistake is huge, because you can never recover from it. If your real need for life insurance is having 500,000 but you opt in to buy only 200k, that means that you will leave your family short 300,000. How would they ever recover from that deficit? They wouldn’t recover, that’s the sad part. Too many times I see this, most people are under-insured, and they don’t even know it. Many time this is because they have the wrong type of insurance (see mistake #3).
To find out how much insurance you need, feel free to check our “life insurance needs calculator“.
Sometime, just by paying a few dollars more per month, you can get an additional 100k, or even 250k of coverage, because some companies offer discounts at the higher amounts. You can imagine what that extra money could mean to your family, should something happen to you.
Most people don’t realize that by trying to save $10 per month on life insurance premiums, they are actually cheating themselves out of a potential 100,000 or even 250,000 of more coverage they could have had. So the reality is that it’s not just a matter of $10 out of your pocket, but rather potentially hundreds of thousands of dollars out of your family’s pocket.
This is a big mistake, I see people make all the time. It kind of intertwines with mistake #2… people often buy less insurance than they need, because they buy a more expensive longer term, or Whole life.
I have no problem with the longer term policies, such as term 20 or term 30, or even Whole Life or Universal life, but only if you can afford to buy enough of it.
If you can’t, then a simple 10 year term policy would suffice, and remember, you can always convert to a longer term policy later.
Let me give you an example, and I have this conversation at least once a day with a young couple, let’s call them Mark & Lindsey. The have just started a family, have 2 young children, a mortgage, and good jobs.
Lindsey asks me to quote her a price for 250,000 of 30 year term insurance on both of them. I ask her why 250k and why 30 year term, and she gives me the classic answer…. 30 years because that’s how long she thinks her mortgage will last, and until the kids a grown up and out of the house. Makes sense, right?
Why 250k? He tells me , well, that’s all we can afford, tight budget etc…
So here is my major problem with this! For the same price, that it would cost them to get this particular policy, they could buy double or 500k coverage if they took a 20 year term, and 1 Million of coverage if they went for Term 10.
Do you understand what I’m getting at??? Should an unexpected premature death occur (is there any other kind?), then this WRONG decision could have cost this family as much as $750,000, which would be sourly needed by the survivor to raise the kids and continue their lifestyle.
Well, first of all, the “immediate need” needs to be taken care of first, and we have accomplished that by getting them the most amount of life insurance for the least amount of money. In the future, their existing term can always be renewed, and sure, it will cost more , but you can always adapt our term laddering strategy to get around any sharp increases in price.
The best way to look at this is… if you are going to make a mistake, and lets face it, there is no guarantees in life, and nobody has a crystal ball and we can’t predict a future.
The bigger question is, if there is a mistake, do you want it to be a big mistake or a small mistake?
A small mistake is paying a little too much for a policy. Why is that a small mistake? Because what’s the worst that can happen? Not much, because if there is a claim, your family still gets the full payout that you wanted and deserve.
But a BIG mistake is trying to save a few dollars on premiums, and then if there is a claim, instead of your family getting a large pay-out , which would really help the, they could get a smaller payout and still need to continue suffering.