1. Buying too little–under insured
A general rule of thumb is to purchase around 10x your annual income. But everyone’s circumstances are different so I always recommend completing an insurance needs analysis. If you would like to complete one on your own I suggest using www.insureright.ca.
If you are the primary source of income for your household, then your spouse and children will need financial support for a certain number of years. I usually suggest until your youngest child is 16 -18 years old. The correct amount of coverage will allow the surviving spouse/children to live comfortably and maintain their lifestyle until they figure out the next steps in their lives.
Don’t forget to insure the stay-at-home spouse as well. Both spouses fill a role in the household; whether they stay at home or go to work, both need to be insured.
2. Waiting Too Long
Don’t wait until it is too late! Believe it or not, you can only qualify for life insurance while you are alive. The older you get the higher your term insurance premium will be. Also, as we age our risk of health concerns increases. This can inflate your premiums and even make you uninsurable. If you have dependents in your household you need to purchase life insurance now. Don’t leave your family vulnerable.
3. Buying Life Insurance from Multiple Sources
Banks and mortgage brokers may offer you mortgage insurance or creditor insurance to protect your mortgage/loan. Airlines offer accidental death and dismemberment if you die or are injured in a plane crash. Car rental companies and even credit card companies offer various insurance plans.
What does one do?
If you have not had the opportunity to sit down with a licensed insurance advisor professional to discuss your insurance needs, then it may be best to activate this coverage immediately to ensure you have some coverage today.
Generally speaking though, paying for insurance through all these alternative sources can add up. A standard term-life or whole-life policy will cover these expenses — mortgage, car payments, car accidents, credit card debt — with perhaps better coverage at a lower cost. As such it is recommended that you meet with a licensed insurance advisor professional. This advisor can assist you uncover your insurance needs, review your existing coverage and tailor a policy to cover those specific needs.
4. Naming minors as beneficiaries
Parents leaving money to their young children can be a big mistake, since minors are not allowed to receive proceeds from an insurance company. No one will have access to the money until the child is 18 years old; at that time they will receive a lump sum. Some 18 year olds may choose to spend the money frivolously instead of wisely. Listing a trusted adult as the trustee of the insurance money will solve this problem. The trustee will have access to the money and be able to use it as needed for the children.
5. Failing to Review or Update Your Policy
It’s always a smart idea to go over your term life insurance policy to make sure you have exactly what you need for your current situation. Your coverage might have been fine 10 years ago, but that doesn’t mean it works for you now. Many life events warrant a review of a life insurance policy.
Make sure you have enough insurance to take care of your changing needs. Maybe you had a child, bought a new home, got a raise at work, quit smoking, or had other health improvements. These life-changing events can either help you save money or require additional coverage.
Updating your beneficiary is also very important. Occasionally ex-spouses are recipients of policies, or subsequently born children are missing from policy beneficiaries. Review or update your policy after such events as the birth of each child, a marriage, or a divorce. Also update your policy after the death of
Generally, it is wise to review or update a policy every three years. If you bought term-life insurance, be aware of when the term is up and renew your policy in a timely manner to avoid gaps in coverage.
Ryan Van Nijenhuis, BA
Credential Financial Strategies Inc.
The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This report is provided as a general source of information and should not be considered personal advice. Your insurance contract will provide details of the coverage available under the plan you choose. Restrictions may apply. Credential Financial Strategies Inc. offers financial planning, life insurance and investments to members of credit unions and their communities. ®Credential is a registered mark owned by Credential Financial Inc. and is used under licence.