Five life insurance mistakes you’re making (and how to fix them)

Avoid these common life insurance mistakes to ensure your loved ones are protected.

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By 

Nupur Gambhir

Nupur Gambhir

Senior Editor & Licensed Life Insurance Expert

Nupur Gambhir is a licensed life, health, and disability insurance expert and a former senior editor at Policygenius. Her insurance expertise has been featured in Bloomberg News, Forbes Advisor, CNET, Fortune, Slate, Real Simple, Lifehacker, The Financial Gym, and the end-of-life planning service Cake.

Updated January 21, 2022 | 8 min read

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Purchasing life insurance doesn’t have to be tricky, but if you’re not armed with the right knowledge, it can be. Small mistakes could mean higher costs than necessary or the difference between how much of the death benefit your family gets when you're gone. There are a few things to keep in mind so that you can get an affordable life insurance policy that does exactly what it’s meant to do: provide financial security to your loved ones if you’re no longer around. Read on for the five mistakes to avoid when shopping for life insurance.

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Mistake 1: Not purchasing enough coverage

Too little coverage can have severe consequences for the people you leave behind. If the death benefit payout doesn’t adequately compensate for your lost income, then the people you are trying to protect from financial hardship might struggle to pay bills and everyday expenses. And if your term length is too short, there’s a chance that your coverage will end and they won’t receive the death benefit at all.

The solution

Life insurance isn’t one size fits all, and purchasing a policy without speaking to an agent about your individual needs often leads to purchasing the wrong policy. There’s no blanket number when it comes to how much coverage you need or how long your term length should be — it all depends on why you need life insurance in the first place. How much you earn, what you provide for your dependents, and any outstanding debts are all going to impact the type of coverage you should get.

Generally, anyone providing for dependents should purchase 10 to 15 times their income in life insurance coverage, but this can be even more depending on what costs and everyday expenses you cover. And the term length of your policy should last as long as any outstanding debts, such as a mortgage, and foreseeable/expected future costs, like your child’s college tuition.

Mistake 2: Not paying your premiums on time

Most life insurance policies don’t have autopay, which can make paying your policy premiums arduous and easy to forget during an exceptionally chaotic time. But missing a premium payment can have major consequences. Rather than a late fee or penalty, a missed premium payment could cause your policy to lapse and you would no longer have life insurance coverage.

And while you could always purchase a new life insurance policy, that can come with its own set of complications. Life insurance gets more expensive as you age, and even the difference of a year can increase the cost of your policy by 4.5 to 9%.

Any changes in your health could also lead to even higher premiums or ineligibility for a traditional life insurance policy altogether.

Another potential risk? Losing your life insurance policy without a new one in place can cause a coverage gap. If your policy lapses and you die before you are able to get a new one, your dependents won’t get the death benefit payout you had been paying your previous premiums for.

The solution

The best way to protect your policy and your family’s financial health is to ensure that you’re not missing payments. But if you do need to postpone making a premium payment, most life insurance companies have a 30-day grace period for late payments. So even if you need to postpone a premium payment, you’ll want to ensure that you pay within that time frame.

If there are extenuating circumstances that are keeping you from paying your life insurance premiums, talk to your insurer. They may work with you to find a solution. For example, many insurers are accepting late payments during the COVID-19 outbreak and extending their grace periods for 90 days if you notify them of any hardships you might be experiencing due to the coronavirus. But communication is key — insurers aren’t going to automatically offer extensions on payments.

→ Check out the Policygenius Price Index for up-to-date premium estimates and life insurance pricing trends.

Mistake 3: Not updating your policy

You’ll probably have your life insurance policy for a good chunk of time — most people purchase term life insurance policies that last between 10 to 30 years. And for many people, a lot changes during that time. You might have kids, get divorced and re-marry, or take on the care of your elderly parents. Whatever the case, these shifts in circumstance could mean that you need to make changes to your life insurance beneficiaries.

But if you forget to update your life insurance policy when these changes occur, the people relying on you financially might miss out on vital protection if you die unexpectedly. Only you can change your life insurance beneficiary, and if you forget to do so, then the death benefit will be paid out as you originally designated. For example, if you named your first spouse as your beneficiary, but later re-marry and don’t change your policy’s beneficiary, then your policy will pay out to your first spouse, even if your current spouse is the primary guardian of your children.

The solution

Any time you experience a big life event, re-evaluate your life insurance policy to determine if it suits your needs as it currently stands. Alongside adjusting your policy’s beneficiary, you may even need to adjust your policy’s death benefit or coverage options.

If any of your beneficiaries die before you do, you’ll want to adjust the beneficiaries in your policy as soon as possible. If your listed beneficiaries aren’t around to accept the death benefit when you die, then your policy is paid out to your estate, which has its own set of negative consequences. Hot tip: you can further protect your loved ones from a death benefit mishap by naming multiple primary beneficiaries or a contingent beneficiary, who accepts the death benefit if the primary beneficiary isn’t able to do so.

Adjusting the beneficiary is a relatively simple process. Most life insurance companies allow you to log into your online portal and make changes to your policy there. If your life insurance company only allows for changes to your policy over mail, you can print, sign, and mail your change request.

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Mistake 4: Naming your estate as the beneficiary

If you have an estate that you’re passing along to your dependents — and a will and testament that specifies this — you might be considering having your life insurance death benefit pay out to the estate.

But the nitty-gritty behind estate planning can make naming your estate as your life insurance beneficiary a big mistake. For starters, wills are subject to different legal stipulations than life insurance policies are. When you die, your will goes through something called probate, which ensures that your estate and assets are distributed how you designated in your will. But during probate, any debts you owe to creditors are also evaluated.

Whatever outstanding debts you have when you die are distributed to lenders before your estate and assets are dispersed amongst the beneficiaries listed in your will. So if you designate your estate as your beneficiary, lenders might get some — or all — of the death benefit, which was meant to financially protect your loved ones.

The solution

The best way to ensure that your dependents get the death benefit is to name them or their legal guardian (if they are minors), as your life insurance policy’s beneficiary. And keeping in mind that if all of your listed beneficiaries have died, your policy will be paid out to your estate, you should always keep your policy up to date.

Mistake 5: Not shopping around for different insurers

No one life insurance company is the same, and not shopping around for life insurance can seriously cost you. Life insurance companies treat each individual circumstance differently, so while you might get costly premiums with one insurer, you still may receive the best possible rates with another.

For example, if you smoke marijuana, you could get decent rates from one insurance company and higher rates from another.

The solution

Life insurers take a comprehensive look at your health, family history, occupation, and lifestyle choices. So it’s important you look at multiple options to see who will give you the best rates after accounting for all the different variables in your life. Prices can vary across multiple insurers for the same amount of coverage, so you should shop around for different policies to see which offer will hit the sweet spot between the lowest premiums and optimal coverage.

How to avoid life insurance mistakes before they happen

The best way to get a life insurance policy that accommodates your individual circumstances is to work with a life insurance broker. Agents at Policygenius work with you for free to navigate your policy options with various life insurance companies and determine where you can get the most affordable coverage.

It’ll also be beneficial to take a look at the insurer’s financial standing, reliability, and customer service reputation so that you know you’re buying a policy from an insurer you can trust. Check out their financial standing with credit agencies like A.M. Best and S&P and their customer service and claims ratings with J.D. Power. Or, check out our reviews of the top life insurance companies where we’ve done all the research for you here.