10 Mistakes When Buying Life Insurance


Let’s talk about the top 10 mistakes that people make when they’re buying life insurance. Now this is not intended to scare you and put you in a position of fear and being worried about making the wrong decision. What we wanna do is help highlight these mistakes that people make so that you can use them as a springboard to help you make the best life insurance purchase decision possible.

 

Now the number one thing that people get wrong is that they don’t buy their human life value, in terms of insurance. What do I mean by that? Well, there is an amount that the life insurance company will issue you as the maximum life insurance that you qualify for. And that is the amount that you want to have in place. The reason is that if you’re just doing an analysis of what you think you need, based on maybe your mortgage, how much loans that you have that are still outstanding, how much it’s gonna cost to send the kids to college, how much you think your spouse might need to carry on their lifestyle in your absence, those numbers normally end up falling short. And they tend to lean towards having the minimum required to keep your life moving forward, or your families life, in your absence. 10 Mistakes When Buying Life Insurance You wanna make sure that your death benefit is high enough that if you are not able to live out your full length of days in your lifespan, and your time is cut short, that you still are able to fill up those wealth tanks with everything that you would have put in had you continued living and working and investing, so that your family can continue on that life that you’re wanting to create for them.

Now the second mistake that people make is not getting the right policy type. Now there’s multiple types of insurance. And we’ve talked before about term, universal, whole life. What happens here is a lot of times we swing towards what we think is maybe best in the moment for various reasons. But term insurance is something that is in force for a length of time. This is not going to be your whole lifespan. That is something that you might need to put in place if you’re trying to get your full human life value. But you’re gonna wanna make sure that that’s not where you stop. The reason is that you want a product that’s gonna be with you for your full lifespan. Now here’s a note about universal and variable types of insurance policies, and why we do not recommend them and why we don’t use them and why I would never have one on myself or my family. With those types of policies you can often run into problems where the illustration shows you putting in a certain dollar amount of premium in order to maintain that policy and keep it in force. But the cost of insurance over time can creep up to the point where you actually need to put more dollars in than what was shown in the initial illustration just to keep the policy in force. That unfortunately is a really precarious position to be in, especially when you’re facing your 70’s and 80’s and you’re looking at the time span of your life where you really need that policy to be able to pay out for you. So we wanna make sure that you have whole life insurance. Now whole life insurance will be in force for your entire life, and it will build cash value.

10 Mistakes When Buying Life Insurance
10 Mistakes When Buying Life Insurance

Which is a valuable component of you being able to control your capital and have access to it and really be able to have a storage tank of money that is usable, safe, liquid and growing. The third mistake that people make when buying life insurance is they try to save money. And I know this sounds like something that would be noble to achieve, to spend the least possible, but in this pursuit, often people end up making that completely wrong decision for the wrong reasons. Now if you’re just trying to get the cheapest product today, you’re gonna buy something different than if you’re looking at the best cost over your lifetime. Let me tell you something really interesting. If you are young and healthy today, you could be in a position where term life insurance could be very low cost, and you could save money by having term insurance for the shortest span of time, say a 10 year policy. But what happens when that 10 year policy expires? The policy then needs to be renewed, and you’ll have a higher rate to pay to keep that in force. So if you’re looking for the cheapest possible, you’re probably gonna cut corners on human life value and not get as much insurance as you need. You’re probably also going to get a lower premium product where you have less dollars going towards it. But A, it’s not building cash value. B, it’s probably not gonna be in force your whole entire life for you. And C, you’re gonna be in a position where you might actually end up spending more over the course of your whole life, because term insurance becomes very expensive to renew. If you look at a typical illustration for a term product, and you look at the renewal rate, and what would be due if you kept that same policy in force after the term is out, you will typically find that about age 77 you will have paid more in premium dollars than you would receive in death benefit for that policy. So if you’re looking to save money, term is not the way to go if you’re looking at a big picture perspective over you’re entire life. Make sure that saving money today is not your primary objective. The fourth mistake that people make when they buy life insurance is relying on group coverage. Mistakes When Buying Life Insurance Now this might be coverage that’s available to you through an employer, and it’s probably very low cost per the amount of death benefit you get. But a lot of times people say I have $100,000 policy in force at my job, therefor I’m good and I don’t need life insurance. There’s several problems with that. One, it’s typically not portable. Meaning that when you leave that job, whether voluntarily or involuntarily, that coverage does not transfer over with you. Meaning you don’t carry it along with you. So whenever you leave that employment, you no longer have life insurance. Make sure that you have your own life insurance policy, that you are the owner, that you can carry that policy with you wherever you go, and it’s not dependent on an employer keeping that in force.

 

The fifth problem that people typically run into in the mistake that they make when they’re buying life insurance, is that they don’t have the right product design. Now this is very specific to you and what your purposes are that you want to accomplish. But for instance, if you are looking at a policy that has the maximum early cash value and a maximum long term growth, that you wanna use this for privatized banking, you wanna be able to invest your assets and your capital by borrowing against the policy and putting that money into other investments that are gonna cash flow for you. Or maybe you also wanna make sure that you have some income stream, something to rely on in your later years of life. You want to make sure that you have a policy that’s designed correctly. And most agents unfortunately are not familiar with designing policies that are meant to be used. They’re typically looking at policies that just accumulate, that build up a cash value and a death benefit over time. And yes they do stay in force for you, however if you wanna use your cash value you really need to make sure that you have specific elements in place in that policy so that you can access, usually with the right design, about 50 to 60% of your premium dollars in the very first year, right as soon as that check clears, that you can then borrow against and go put to work in an outside investment. The sixth mistake that people make is not being with the right insurance carrier. First of all, it needs to be with a mutual company. They need to have high financial ratings. That means a Standard and Poor’s, or Fitch’s or A.m. Best rating of A minus or better. They need to have a Comdex score of at least 80 or better. That’s a scale of one to 100, rating the financial strength of that company. You wanna make sure that they’ve been around for 100 plus years and they’ve paid dividends throughout that whole time. Meaning that they’ve been stable enough to pay through the Great Depression and the Great Recession, and they’re probably not going to be failing anytime soon. The seventh mistake that too many people make when they buy a life insurance product, is that they don’t have the right riders in place. Now what do I mean by riders? There’s specific things that you can put into the policy that will make it perform better for you. One of those riders are making sure you have paid up additions. And this is a key part of your policy design. You also wanna make sure you have waiver of premium. Now this allows the policy to stay in force if you become disabled, lose your income and are unable to maintain the policy premium as a result of that disability. The policy instead will continue to progress forward and will self fund, allowing you to keep that critical life insurance policy in force at the time that you need it the most. Now you can also have an accelerated death benefit rider which acts kind of like a long term care rider, and you are able to use that death benefit before you die in certain cases of critical illness. You also wanna make sure that for any term life insurance that you do have in force, which more than likely you will need in order to make sure that you have up to your human life value, you want that to be convertible. That means that at your choosing, you have convert that over to a whole life insurance product. And that will then give you more life insurance, more death benefit and more longevity on your policy. The eighth mistake that I see people making when they purchase life insurance is over analyzing. Now this probably also goes without saying, but sometimes we can suffer from paralysis analysis or analysis paralysis. And really what happens is we second guess our decisions so much or we over analyze. We look at illustrations and we’re comparing line by line with a microscope and a fine tooth comb, and looking to see which policy’s gonna perform better, which one is going to have the better dividends, which one’s a stronger company, and we can really get into that microscopic view where we’re not really being able to move forward. What we want to do is be able to know the most important things about the life insurance company and the right financial professional to be working with that knows your objectives and the strategy that you’re looking to accomplish, and is able to carry that forward. Now this goes right into the ninth mistake that I see people making, and it’s not buying life insurance soon enough.

 

Almost everyone who buys life insurance always said I wish I would’ve known about this earlier and started it earlier. One thing is that you’re able to then build cash value and accumulate that cash value more quickly so you’re able to use it. Another thing is that you get lower premiums when you start the policy sooner. You’re also gonna be less unhealthy and more likely to be healthy, so you’re rating and your premium are gonna be lower. Now this leads right into the tenth mistake that I see way too many people make. And that’s because they delay, they end up getting into a position where now they do not have the ability to get life insurance. They waited too long and now they’re past that point of decision. And now they have no ability to get the life insurance on their life, but there is a redeeming factor. If you’re looking to use privatized banking and high cash value life insurance, you can put a policy on a spouse or a child or a grandchild or even a parent, because you have an insurable interest in that person.

 

So don’t let that potential un-insurability prevent you from putting life insurance in place that you know you can use, and that is gonna tremendously benefit your life. Hey, I hope you liked this video. If you did, click the link in the description box below for more information and don’t forget to like this video. Share your comments. Meet you in other blog post