Life insurance is often promoted as a financial safety net, offering peace of mind to individuals and their families. However, many people end up feeling that they have lost money with their life insurance policies. This perception can be caused by several factors ranging from misunderstanding policy terms to selecting the wrong type of insurance.
This blog explores the main reasons why so many people lose money with life insurance and provides tips on how to avoid these pitfalls.
1. Being fooled
People purchase life insurance through television or mailers, and many times that can cause people to purchase policies they don't fully understand. As an example, advertisers will promote the lowest cost life insurance by showing rates that may go up every five years without the purchasers' knowledge. By the time the purchaser of that policy realizes the premiums are going up, they may have developed health problems that makes it difficult for them to get a new policy with favorable rates, leaving them stuck with increasing premiums.
2. The policy cancels due to missed payments.
Life insurance policies require regular premium payments. If the policyholder misses payments or cannot afford the premiums because they keep increasing over time, the policy can lapse due to missed payments.
3. Unexpected policy changes
In the more than thirty years i've been in this industry, I've met people who have insurance policies that were going through changes that they had no knowledge of. For example, i've seen people that had universal life insurance policies that ran out of cash, and as a result, they had to pay a lot more money to maintain the contract or the policy would have lapsed. Another example, term life insurance policies that may have had a term conversion option, but because the client was not aware of the conversion option, missed a chance to keep that policy and the policy lapsed.
4. Agents not understanding what they are selling.
Some insurance companies have particular policies that they really want agents to push so they incentivize the agents through higher commissions or bonuses to sell that policy. This can lead to agents not properly assessing what's really in the best interest of their clients and instead giving their clients policies that are not suitable.
5. Clients not getting regular policy reviews.
Another common problem in the life insurance world is life agents "come and go". This can leave a lot of actively paying clients without an agent to properly service them and follow up to keep them abreast of upcoming changes of their policies.
6. Benefits never used
I've also seen people that had insurance policies with benefits that they could have used, but they were unaware that the policy had the additional benefits that could have helped them.
7. Policies that no one knows about
There are a lot of life insurance policies that go completely unpaid due to the fact that no one in that family knew about the existence of the policy. A person can pass away with active life insurance, and if no one else is made aware that there is an active policy in force that policy can go unpaid. In addition, insurance companies have no way to find out if a person had passed away, unless a claim is submitted.
How to avoid losing money with your life Insurance.
- Assess your needs: With an agent determine how much coverage you need, and for how long. Consider term life insurance for straightforward affordable coverage.
- Understand the policy: Read all terms and conditions carefully. Ask questions and seek clarification from your insurance Agent.
- Work with a Broker: Work with an agent that has access to a number of insurance providers, so he or she can find the best rates and features for your needs.
- Review regularly: With a reputable insurance advisor reevaluate your policy as your circumstances change—Such as marriage, having children, or buying a home.
- Work with a Life insurance advisor: A reputable life insurance advisor will fully assess your needs and wants to help you choose the right life insurance. In addition, a good Life insurance advisor, will be with you for the long haul to help you review your policy and make your policy work for you and your family.
Conclusion
Life insurance is a very valuable tool for financial protection, as well as potential cash accumulations. However, many people will lose money due to policy lapses, no agent, and misunderstandings of their contract.
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