Your life insurance fails if you don’t have suitable coverage from a reputable company at the time of a claim. You have the power (and responsibility to your beneficiaries) to prevent that failure. Here are five ways to make sure you’re covered:
Mind your budget
Make sure you can afford the coverage. This may require the compromise in the form of buying less or getting coverage for fewer years (for instance, Term 10 instead of Term 20).
Get enough insurance
Prevent under-insuring yourself by getting enough coverage for today and tomorrow. If your need decreases, as with a mortgage balance, getting enough insurance for today means having “too much” later (but you can always reduce your coverage). If your need increases for estate planning, you’ll have “too much” today but that’s often cheaper than adding more coverage later (if you qualify in the future).
Pay your premiums
Make sure you pay your premiums. Otherwise your coverage will get cancelled (called “lapsing”). Getting life insurance reinstated can be difficult if your health has changed. The suicide and incontestability periods often restart.
There’s an exception: permanent life insurance with a cash value. You may be able to stop paying premiums temporarily or permanently, depending on the size of your tax-sheltered savings.
Monitor your coverage
It’s easy to ignore your life insurance after purchase. Your contract needs maintenance—not lots, but some. Your have contractual rights you may want to exercise. For example, if you have term life insurance, you could convert to permanent if your situation changes. If you wait too long, this option expires and eventually your term insurance expires too.
Term rates jump sharply at each renewal. If you’re healthy, you can apply for new coverage instead of renewing. This takes time. If you wait too long, you’ll be forced to pay the hefty renewal rates until the new protection is in place.
Permanent life insurance can build up a cash value. If investment returns are lower than projected, you may not have enough cash value to keep your coverage going for life. You don’t want to find out that you’re underfunded at age 74.
If your advisor isn’t providing proactive ongoing service, you can contact your insurance company and ask for a replacement. If you buy online, you lose this option.
Stick with your life insurance
Make sure you don’t change your mind. Too few protect their loved ones by insuring themselves. LIMRA research shows that personal life insurance ownership in Canada dropped to a 30-year low in 2013—from 59% in 1982 to 43%. Having life insurance shows that you’ve prepared for your family’s future.
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