Commentary: Four common mistakes to avoid when buying life insurance

If you were to rank the topics that you most enjoy talking about, life insurance would probably not be at the top of anybody's list. After all, planning for when we leave this world is not the most comfortable thing to think about. Add to that th...

If you were to rank the topics that you most enjoy talking about, life insurance would probably not be at the top of anybody's list. After all, planning for when we leave this world is not the most comfortable thing to think about. Add to that the fact that life insurance can be incredibly complicated, and you're practically guaranteed to stay quiet on the topic.

We don't think that's fair.

Life insurance can be a wonderful and useful tool, and as financial advisors, we believe it's our duty to kick off the life insurance conversations you should be having. Part of this duty involves helping people understand some of the most common mistakes when it comes to shopping for life insurance. Here are four mistakes that tend to trip people up.

Waiting to purchase coverage: Procrastinating on the purchase of life insurance can be a big mistake for two reasons. First, while we all have dreams of living a long life, the unfortunate reality is that death can come suddenly and unexpectedly. Would your loved ones have the financial stability they need to maintain their standard of living if something happened to you? If not, then you may want to consider purchasing life insurance.

Delaying coverage is also a bad idea since life insurance tends to become more expensive the older you get. Plus, if you develop health problems, it will be that much more challenging for you to be able to qualify for a policy.


Getting the wrong type of coverage: Term or whole life? That's probably the most common question asked when it comes to life insurance. Your situation and what you want to accomplish with your policy will dictate which type of coverage is right for you and your family. Term life policies offer coverage within a set timeframe (often 10-30 years) and have lower premiums. Whole life policies are generally more expensive, but they will stay with you for the rest of your life and can be used as an investment tool.

Purchasing insurance only for the primary breadwinner: Insuring the primary earner in a family is a good idea. How would you survive financially if that spouse passed away? But, if one spouse stays at home to take care of the kids, don't forget the value that he or she brings to the table. It's hard to quantify the value a stay-at-home parent provides, but one recent survey from estimated stay-at-home parents will work 94-hour work weeks and would have an estimated salary of $113,586! Insuring a stay-at-home parent is one of the best ways to preserve your family's quality of life.

Relying solely on your employer's coverage: Many companies offer life insurance to their employees, which may seem like a great deal. Your employer could help pay the premium, and the money is automatically deducted from your paycheck so you won't miss the money that you're using to pay for the insurance. These group plans will often not require a medical exam, either, so for those who may not be in perfect health, you could still qualify for the same amount of coverage as your co-workers.

Even with those perks, solely using your employer's coverage is likely not a good strategy. If your employer pays for part of your premium, for example, it may not be the lowest-cost option for you, especially if you're young and healthy.

Additionally, in many cases this coverage may not provide enough insurance for you and your family. It can be hard to know exactly how much coverage you need, but industry guidelines often recommend 7-10 times your salary. Many policies through an employer simply do not offer this large of a benefit.

Finally, if you choose to only have coverage through your employer, remember that your coverage is tied to your job. This means that if you leave your job, that policy will likely not be portable. Moving jobs could lead to the risk of having a gap in your life insurance coverage.

Understanding the benefits that life insurance has to offer, as well as the aspects of a policy that you should look for, can help make you a smarter consumer. Taking the time to understand life insurance can help you make sure your policy is right for you and may even alleviate the dread that comes with discussing it.

Bruce Helmer and Peg Webb are financial advisors at Wealth Enhancement Group and co-hosts of "Your Money" on KLKS 100.1 FM on Sunday mornings. Email Bruce and Peg at . Securities offered through LPL Financial, member FINRA/SIPC.

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