Getting life insurance looks simple if you’re a millennial. You’re young and healthy, which means lower premiums. You may be single, which reduces the amount you need.
Mistake: Expecting speed
You can’t get life insurance at the exact moment you want protection, which would be just before death. You don’t know when that will be. Claims within the first two years (the “contestability period”) face more scrutiny.
Life insurance often takes weeks or months for approval. There are quick issue products if you want higher premiums, more limitations and fewer options.
Mistake: Qualifying later
Insurance companies are businesses. They aren’t forced to offer you insurance. They want lower risks. Since you can’t tell how life will unfold, you don’t know if you’ll be insurable later.
Buying low cost term life insurance now is a way to lock in your coverage. Should your health deteriorate, you can renew your coverage (though rates jump sharply). Should your needs change, you can often convert to permanent life insurance before a maximum age.
Mistake: Ignoring future needs
Today, you may only need Term 10. Since you’re young, the cost will be low. You could save big over time by looking beyond the new and getting coverage for longer. Perhaps Term 65 or permanent coverage. Since most policies guarantee the premiums, you’re protected from higher costs later.
Mistake: Misunderstanding affordability
Life insurance premiums are based on your age, health and activities. As you wait, your premiums will become more expensive. As your income increases, you may find the higher premiums easier to afford—provided you’re still an attractive risk to the insurance company.
Your need for life insurance changes with time. Getting what you need now and adding more later looks reasonable but the premiums will be higher. Anticipating reasonable future needs and buying more now locks in your premiums with two valuable assets—your current age and health.
Mistake: Risky behaviour
If you have risky hobbies like skydiving or racing, you face higher premiums or exclusions for claims from those activities. Once you have life insurance, your premiums are usually guaranteed. You won’t pay more if you start smoking or undertaking risky activities.
Tip: if you’re buying life insurance with the intention of starting risky activities, be sure you answer the questions in the application carefully.
Mistake: Ignoring other risks
Your biggest risk before age 65 is a disability followed by a critical illness. Life insurance won’t help.
Even if you’re working for a large corporation with amazing benefits, look at the exclusions and limitations for your Long Term Disability insurance. You may be surprised. If you don’t know what to expect or what’s available, your analysis becomes more difficult. You may need an independent advisor to spot any gaps or weaknesses.
Mistake: The wrong time horizon
You can also make the mistake of getting life insurance for the wrong duration. Term 10 and Term 20 look attractive because of the low prices. But you could get much more value over the years with Term 65 or even permanent life insurance with guaranteed cash values.
Similarly, if your needs are for a short period, getting insurance for a longer duration costs you more than required.
Mistake: Using your parent’s insurance advisor
If you buy life insurance online, you don’t get independent advice. Finding an advisor can be a hassle. You may be tempted or encouraged to use your parents’ insurance advisor. Check their age. If they are about the age of your parents, they’ll retire well before you do. What happens then? You’ll have the hassle of looking then. By default, you’ll likely be assigned to another advisor you don’t know. Maybe you’re wiser to select your own younger advisor.
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Unsplash: Llywelyn Nys