Insurance is vital, but deductibles, exclusions, premiums, terms, riders … the jargon and complexity of insurance baffles many consumers. Unfortunately, this can lead to insurance mistakes.
Here are some of the most common. Any of them can imperil your financial plan. Use this list as a checkup for your own needs, and make sure you talk to your financial planner and insurance professional before making any rash decisions.
First Mistake: Buying Too Little
Young parents with children often fail to get enough life insurance to cover expenses for survivors if a chief breadwinner dies early. Buyers of life insurance can be seduced by the “investment” aspects of cash-value insurance. Term insurance can be a very affordable way to obtain an adequate death benefit to meet the needs of the family in the event of an unexpected death of mom or dad.
Don’t skimp out on your liability protection. When was the last time you saw someone who was injured go to court seeking less than $1 million in compensation? Under-estimating potential liability can be damaging. A $1 million umbrella liability policy may cost as little as $200 per year and will supplement your homeowner’s and auto policies.
Second Mistake: Ignoring Disability
Although a young family should have adequate life insurance, an even bigger risk is loss of income due to a long-term disability. Workers under age 65 have a greater chance of becoming disabled than of dying. A disability policy can be invaluable if this happens. If you have the option to purchase this as group coverage through your employer, take it.
Third Mistake: Buying Narrow Coverage
Too many consumers succumb to sales pitches on specialized insurance policies. Burial insurance, cancer insurance, accidental death insurance and others may seem cheap, but that’s because they are unlikely to pay off. Instead, good life insurance and medical insurance will handle those eventualities no matter how they occur.
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