Common Life Insurance Mistakes
Don’t Make These Life Insurance Mistakes!
Dealing with the emotions and stress of losing a family member can be very difficult. The financial benefits life insurance provides can act as a safety net for families and help cover the cost of funeral, medical, travel, and other expenses. Unfortunately, many insurance companies will look for reasons not to pay you. A mistake made during financial planning may be all an insurance company needs to mail you that denial letter.
When taking out a life insurance policy, you’ll want to avoid these common mistakes.
Choosing the Wrong Policy
Life insurance policies can come in many forms. The two basic types are term and permanent life insurance.
Term life insurance provides coverage to your loved ones if you die during the set term. A term is typically set for 5, 10, 15, 20, or 30 years. When the term ends or “expires,” the policy automatically cancels itself and you may not be entitled to a refund for the premiums you have already paid.
Permanent life insurance lasts your entire life. Universal life insurance is a type of permanent life insurance in which premium payments accumulate a cash value over time, which can help cover monthly premiums and allow you to borrow money from the policy at the cost of reducing the payout upon death. Whole life insurance is another type of permanent life insurance that requires payment of fixed monthly premiums for the policy to remain active throughout your life.
Which type to choose comes down to your personal needs and what you want out of the policy. If you only need enough money to cover a loan, for example, then term life insurance policy may be right for you. If, on the other hand, you want long term coverage for future funeral costs or medical expenses for a dependent family member, then permanent life insurance may be a better choice.
Not Leaving a Beneficiary
If a beneficiary is not named on your life insurance policy or if you outlive your named beneficiaries, then the policy is generally payable to your estate. Your family can make a claim for the benefits of your estate after your die, but this can be a lengthy and time consuming process and often involves waiting for creditors to be paid first.
To ensure an easier process for your family, it is highly recommended that you name a beneficiary and update it in the event that the beneficiary dies before you do. Otherwise, your loved ones may have a tough time collecting or may be unable to receive any benefits from your policy.
Not Naming a Contingent Beneficiary
A contingent beneficiary is a named person who will receive the benefits of the deceased’s life insurance policy in the event that the primary beneficiary dies, is not able to be found, or chooses not to accept the benefits.
It is recommended that you name a contingent beneficiary in case the primary beneficiary cannot collect the policy benefits for some reason. Say for instance, a husband and wife die at the same time, but the wife had only named her now deceased husband as the only beneficiary of her life insurance policy. Without any contingent beneficiaries, the policy will be paid out to the policy holder’s estate, which again, can ensure a lengthy and sometimes difficult retrieval process.
Changing Your Policy After 2 Years
When you begin financial planning with an agent from a life insurance company, the agent should inform you about your life insurance contract’s 2 year contestability clause. Florida Statute §627.455 states that except in special circumstances, “every insurance contract shall provide that the policy shall be incontestable after it has been in force during the lifetime of the insured for a period of 2 years from its date of issue.”
What this means is that if you die within two years of taking out a life insurance policy, the insurance company may have the right to contest or even deny your beneficiary’s claim. The reason is usually to make sure you didn’t make any misrepresentations on the application, like omitting the fact that you had cancer, for instance.
What your insurance agent and contract will probably leave out is that if you reinstate a policy or make any changes to an active one, the 2 year contestability period might actually start over again, increasing the risk that if you could die within that period, the insurance company may try to restart the contestability period, leaving your loved ones open to claim denials.
Failing to Making Timely Payments
When you take out a life insurance policy, the insurance company’s obligation to pay your beneficiaries is contingent upon you paying your monthly premiums.
Most life insurance companies offer a 30 day “grace period” that allows you to pay a late premium without repercussions, but non-payment within this period will cause your policy to lapse, and your loved ones will not be covered when you die. Insurance companies will be quick to deny your beneficiary’s claim even if you die just one day after your policy lapses.
Policy Changes After Divorce
If you had a life insurance policy in place at the time of your divorce, you may need to make changes in order to comply with the divorce, or your wishes. Some divorce decrees require you to maintain certain insurance. Failure to do so could void the divorce decree. Moreover, recent changes to Florida’s divorce law may impact the beneficiary designation.
If you are considering taking out a life insurance policy or have already done so, keep these common mistakes in mind and review your policy to make sure you have taken the proper steps to ensure your family will have some financial security in the future. Don’t forget to review your policy from time to time and make sure all information is up to date.
Whether it’s filing a life insurance claim or disputing a claim denial, you should hire the best Florida life insurance attorney who can get you the benefits you deserve. The attorneys at the Law Offices of Jason Turchin have helped many clients with their life insurance claims. Call us today at 800-337-7755 for a free consultation to find out how we can help you with your claim.