The 5 Biggest Mistakes You Can Make with Life Insurance Policies & How to Avoid Them

Life insurance is your shield against unexpected (or eventual) hardship. It is rather like placing a monthly bet where only the survivors “win.” The proceeds, type, and timing of the insurance need to be tailored to individual and family needs. Having too much insurance could cost thousands in the long term. And the implications of having none or not enough are obvious.

Key Points:

Many people are underinsured or fail to update their life insurance, leaving their families vulnerable to financial hardship.
Relying solely on term insurance without considering long-term needs can result in expensive premiums later in life.
Buying unnecessary policies from banks or credit cards can lead to wasted money without adequate coverage.

Here are the 5 biggest mistakes families make with life insurance policies.

1. Inadequate Insurance Amount

Many widows go through their late husbands’ death benefits within just a few months. Also, to raise a child through age 21 — not including college costs — figure about $250,000. Ask yourself if your or your loved ones can stretch your insurance proceeds to pay debts and just go on living. If you cannot answer that, you may not have checked your policy and done the math lately.

2. Your Term Insurance Has Run out or Has Become Too Expensive to Carry

If you have carried a low-premium term insurance policy, you are paying lower premiums for higher coverage than, say, whole life. If your objective is simply to have the security of a big payout if you die, it is meeting your short-term needs. As you age, however, those premiums get higher, or the policy payout gets lower.

Relying on term insurance is the equivalent to renting a home. You gain no equity in your account. The longer you live, the more the insurance company profits.

3. You Bought Life Insurance Before You Needed It

A single person with no dependents needs only enough insurance to cover burial costs. Even though life insurance is cheaper for the young, buying big coverage earlier in life could be costly and a waste of good money.

4. Purchasing Life Insurance From Many Sources

Banks offer mortgage life insurance. Airlines and car rental companies, and even credit card companies offer life policies in case you’re not around to pay the mortgage, or if you die in an air crash or need to pay other expenses. Those policies are hugely profitable to the providers, and the insured rarely collect on them.

5.Neglecting to Review or Update Your Life Insurance Policy

The time to review your life insurance coverage is not right after a tragic event. Many life changes require another insurance review. Are the beneficiaries current? What about the children as backup recipients? (You should have at least two backup beneficiaries.)

Five Ways to Avoid Common Life Insurance Mistakes:

Get an unbiased, no-nonsense analysis of your current insurance needs. Know what your family will need and update your insurance to meet those needs and goals.
Consider buying insurance policies where your premiums build an equity as well as providing your insurance safety net. There are many life insurance products on the market that provide equity instead of sucking up monthly payments. Get some advice from an insurance expert and tailor your portfolio accordingly.
A wise approach for a young person is to wait longer to buy life insurance when he or she is still single and if no one will suffer financially if they die. Again, just get the minimum to pay funeral expenses so as not to be a burden on your family.
If you already have adequate life and casualty insurance, don’t bother with expensive products from other sources. The best advice is to only buy life insurance from an insurance provider.
Generally, it is a good idea to review and/or update your insurance policy every three years. This is especially important if you rely solely on term insurance with time limits that could lapse. You could cause gaps in coverage that in some cases affect the term of the policy.

How AJF Insurance Services Can Help

As you embark on the exciting journey of retirement planning, envision a future where your legacy is not only protected but strategically enhanced. This is where our expert financial advisors come into play, seamlessly incorporating life insurance into your retirement strategy. Beyond the typical scope of coverage, life insurance can be a dynamic tool, offering a unique blend of protection and growth potential – all carefully curated to maximize the benefits for you and your loved ones.

Our seasoned advisors at AJF Insurance Services understand that life insurance is not just a safety net; it's an integral component of a comprehensive retirement plan. Picture a retirement where your financial legacy is strategically leveraged to create lasting impact, whether it's providing for your family, funding a child's education, or leaving a charitable legacy. With our personalized approach, we analyze your unique financial situation to tailor life insurance solutions that align seamlessly with your retirement goals and aspirations.

Why leave the legacy you've built over a lifetime to chance? Our dedicated team is committed to optimizing life insurance as a powerful tool in your retirement arsenal. By partnering with AJF Insurance Services, you gain access to a wealth of knowledge, strategic planning, and a roadmap to a financially secure and impactful retirement. Let us help you navigate the intricacies of life insurance and retirement planning, so you can enjoy the peace of mind that comes from knowing your legacy is in expert hands. Secure your financial future and leave a lasting impact with the guidance of our experienced financial advisors.

By: Albert Ferrin
Senior Help And You, LLC
March 11, 2025