Here are perhaps the five most common mistakes consumers make when buying life insurance. Avoid them, and you’ll be better off (and have more money in your pocket).
- Failing to shop around on price. Agents and brokers all have their own favourite companies they promote and sell. But does company matter? For most of us, and for most types of life insurance coverage, either the least expensive company or close to the least expensive is going to be as good as (or better) than other more expensive companies. If your broker isn’t recommending the least expensive life insurance company, you can run quotes on this site (see the life insurance quotes system in the top right of this page).
- Buying the wrong type of insurance. Do your research on the available types of insurance. Most consumers should be looking at some form of term life insurance. Purchasing whole life or some other form of permanent insurance when term life insurance is better suited means you’re going to spend a lot more money on life insurance. Conversely, for the smaller percentage of people who either need or prefer permanent insurance, buying term life insurance instead of something like universal life insurance means we’ll be out a lot of money over the long term.
- Failing to purchase term life insurance without the conversion privilege. This is probably the least frequently discussed feature on Canadian life insurance today – and it’s one of the most important….AND it’s available for free on most (but not all!) term life insurance policies in Canada. It’s an airbag for your life insurance policy, insurance for your insurance policy, your back door out of a term policy if everything’s gone wrong. Many won’t use this feature ever, but if you need it, it’s everything. It’s free, make sure your term policy has this before purchasing (and make sure it’s ‘term to permanent’ conversion, not term to term).
- Not getting everything guaranteed. In today’s life insurance marketplace, you should be able to guarantee just about everything. That includes future premiums (and not just the internal premiums, but the actual premiums you pay). For example if you want to have your life insurance policy premiums paid up or go to 0, you can do this on a fully guaranteed basis. Or you can get a fancy investment based calculation that may look good, but is not guaranteed. Purchasing a life insurance product that is not completely guaranteed is completely at odds with the insurance concept. And in today’s insurance marketplace, there’s little need to do so.
- Buying too little insurance. This typically goes hand in hand with purchasing the wrong type – get the wrong type of insurance and the only way to make it affordable is to buy too little. In addition, most consumers seriously undervalue how much life insurance they need to provide their dependents an income over a long period of time (say long enough to get the kids out of the house). If you’re spending your entire $50,000 of paycheque each year keeping the household together, how long do you think $250,000 is going to last when you’re not around? 5-6 years? That’s not long enough if you’ve got young kids. You can use the how much life insurance do I need calculator to get some estimates.
Pay close attention to those 5 tips and you’ll be a lot closer to ensuring you’re keeping your hard earned dollars in your own pockets.