Life insurance provides you with the peace of mind of knowing that the people who depend on you for financial support will be taken care of after you're gone. That's why no matter what type of life insurance policy you have, you want to be certain the death claim can be paid as soon as possible and the funds are put in the hands of your beneficiaries. Unfortunately, many people put this at risk by making these four common mistakes:
Letting your policy lapse
Depending on the type of life insurance you have, you could be paying your premiums for several decades to come. For this reason, you need to factor in the cost of your policy into your budget to avoid missing payments and risking a policy termination. Better yet, have your premiums automatically deducted from your checking or savings account every month. While insurers may allow a type of grace period if you are late paying your premium, going too far beyond your due date can put your coverage at risk for policy lapse.
Inaccurate application information
Providing inaccurate information or withholding important information on your life insurance application puts your beneficiaries at risk by way of material misrepresentation. If the insurance company were to find evidence that the information on your application was fraudulently misrepresented, your policy may be voided, leaving you with no coverage or, when your beneficiary files the claim, it could be denied.
Leaving a large policy loan balance
Many types of permanent life insurance allow policyholders to borrow against their policies by way of a policy loan. However, borrowing too much from your policy and not paying it back will reduce the amount of your death benefit, leaving your beneficiaries with less than you may have intended. If you do borrow from your life insurance policy, it is important to weigh the risks it poses to your beneficiaries.
Making your estate your beneficiary
If you die and your estate is the named beneficiary of your life insurance policy, the proceeds of your death benefit could get used up by things such as estate taxes, probate costs, and any outstanding debts you may have at the time of your death. This could potentially leave the people you love with little or even nothing. For estate planning purposes, it's generally best to name an actual person or persons who can manage and direct how the proceeds of your policy are to be allocated. If you have questions about setting up your estate plan to suit your individual needs, be sure to speak with a qualified attorney or trusted financial advisor.
Understanding how your life insurance policy works is very important. Don't put your loved ones at risk in the event they need to file a life insurance claim. If you have questions or need additional information, speak with your agent or company representative.