5 COMMON MISTAKES IN INSURANCE
Marriage. New baby. House. Car. Loved ones’ future. These are some of the good reasons to take into account when obtaining a life insurance policy. If you are about to acquire an insurance or have bought a policy recently, make sure you do not commit the following mistakes in insurance.
Mistake 1: Waiting to Buy Insurance
Why wait if you can buy one now? It is important to act as soon as you feel the necessity to purchase an insurance, whatever the reason is. Premiums escalate as people age or their health deteriorates. Some illnesses or health problems make an individual ineligible for coverage. Again, why wait if you can buy one now? The longer you defer your buying decision, more expensive an insurance may be.
Mistake 2: Purchasing the Cheapest Policy
Many people believe term life insurances differ only in price. While this notion is applicable in some cases, this should not be the only factor to be considered in buying an insurance policy. Yes, life insurance policies are somewhat complicated. But individuals should learn its features and benefits. There are significant policy provisions an individual should look into before choosing the lowest price.
Most term policies are convertible, which means such policies may be exchanged for a permanent type of life insurance policy at a future date, regardless of future health. Certain insurances offer more generous conversion privileges than others. The most generous ones are available for as long as you pay term policy premiums or to a particular age. Find out if there are any restrictions on the policy available for purchase under the conversion privilege. Some insurances have one type of permanent policy at conversion; others have several.
Mistake 3: Late or Missed Payments
Making late or missing payments can create a huge impact on policy benefits, especially on a universal life policy with secondary guarantees. Universal life policy is a permanent policy with a long-term guaranteed protection at the least possible rate. Many of these policies have cash surrender value; universal life with secondary guarantees concentrates on maximizing the insurance amount available per premium. Some policies tend to be sensitive to the timing of premium payments. Be sure to check with the insurance firm if you feel you are going to be late on a payment. Many policies allow deferring payment between 30 and 60 days without changing its guarantee.
Mistake 4: Insurance is NOT an Investment
Insurance is an investment. In the United States alone, the Financial Industry Regulatory Authority (FINRA) looks at a variable life insurance policy an investment. This policy is a permanent policy that provides life insurance protection with cash value. Part of the premium goes to life insurance, the other is invested into several investment instruments. The value of these accounts fluctuates according to the performance of these vehicles. Frequently, people consider these values to supplement their retirement funds. So individuals must fund their variable life policy to maximize the growth of its value. Continue making adequate premium payments especially in the event of poor investment returns. Paying less than originally planned can largely affect the cash value available to you.
Mistake 5: Borrowing from Policy
A permanent policy’s cash value can be used for any reason, if done properly. Although this is a great advantage, it must be carefully managed. All the gains you have withdrawn from the policy will become taxable if you take out too much money and the policy lapses. Granted you have withdrawn too much money from a policy and it is about to lapse, you may still maintain the policy by paying additional premium. Make sure to closely track your life insurance policy’s cash value and consult a tax advisor for guidance. You do not want any unwanted tax liability, right?
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