As a physician, you know one of the the last things people want to think about or talk about is mortality. That’s why so many avoid the need for life insurance. And when they do finally buy life insurance, they often rush through the process and make critical errors.
Some life insurance policies can be very complex, and the many types and carriers available means they can vary widely by price, guarantees, and features. Choosing the right one for your unique needs requires time, research, and professional advice.
Below are the six most common errors you should try to avoid when shopping for life insurance.
Just like individual disability insurance, one of the main purposes of life insurance is to replace lost income. In this case, it’s to provide for your loved ones in the event you pass away unexpectedly.
Unlike with disability insurance, your survivors won’t receive a monthly benefit. They’ll receive a one-time death benefit. If that amount is too small, the money could run out way too soon.
You should spend time with your loved ones and a professional agent to determine your current and future needs to arrive an adequate death benefit. Think about the cost of:
- Paying off the mortgage.
- Paying off other debts that don’t go away just because you die.
- Medical insurance if your employer currently provides.
- Child care, or even their college tuition.
- Retirement savings for your surviving spouse.
These are just a few of the major items to consider. It’s important to think about what it will cost to provide for your survivors if you’re not there to help support them. When determining how much life insurance you need, don’t understatement these needs and don’t just pull a number out of the air.
Another mistake is relying solely on group life insurance coverage. Group plans are cheaper than individual policies and easier to obtain because they typically do not require underwriting.
Group policies are a good way of supplementing your life insurance coverage, but you should never rely solely on one. Doing so puts you at risk of losing your coverage because of a change in jobs or membership status. Group plans also don’t always provide a large enough benefit to adequately provide for your loved ones.
With an individual policy, you will own it as long as you pay the premium. It can therefore be tailored to your specific needs and lifestyle.
Many people fail to insure the lives of their spouses, especially those who do not work or who make far less than they do. But while you may not have to replace lost income, there may be financial needs that arise if you lose a spouse unexpectedly.
There will be initial costs such as funeral expenses and time off work for mourning. There may be tasks your spouse performs that you will likely have to pay for if he or she passes away, such as child care.
Like with disability insurance, life insurance is always more affordable the younger you are when you apply. You will pay more the longer you wait if your overall health worsens over time.
So even if you don’t have an immediate need for insurance, it may still be worth considering a policy now knowing the need may arise down the road. Also keep in mind that you can cancel your term policy at any time and replace it with different coverage if the need arises. And as with disability insurance, many life insurance policies enable you to add coverage in future years to account for life changes.
Dozens of companies offer life insurance with varying degrees of features and costs that can vary by hundreds or even thousands of dollars per year. Therefore, you should never limit your search to one policy or recommendation.
When you compare options, you need to assess more than just cost. You want to survey all the various:
- Contract provisions.
- Underwriting standards.
- Optional riders.
You should also look at the insurance company and ensure that it’s a highly rated, reputable firm.
Doing this without professional help would be a daunting task for most people, but especially doctors with demanding careers. Therefore you should enlist the help of a licensed independent insurance agent.
Independent agents are contracted with multiple insurance companies. They can offer you multiple options and can choose among different carriers for the best combination of price and features.
One of the most important decisions to make on life insurance is naming one or more beneficiaries, the person or people who will collect the death benefit.
A common mistake is naming only one beneficiary, such as spouse. But if that person dies before you and the designation isn’t changed, it can cause problems for settling your estate.
You should also review your beneficiary designations regularly to ensure they match your current wishes, especially if you get married, get divorced, or have children. You’re typically allowed to change beneficiaries anytime simply by contacting the insurance company.
Joel Palmer is a writer and personal finance expert who focuses on the mortgage, insurance, financial services, and technology industries. He spent the first 10 years of his career as a business and financial reporter.