The four most common mistakes in life insurance

Obtaining life insurance is a financial ritual, especially if you have a family that depends on your income. But it can be difficult to understand what your policy covers, what the full benefits are and how to pay for them.

Many people feel overwhelmed when it comes to life insurance. According to an October 2023 survey by insurance comparison site Insuranks, 29% of millennials say they have not yet purchased life insurance because they are bothered by its complexity.

CNBC Select spoke with William Bevins, a certified financial planner with Cypress Capital, to help you avoid some of the most common mistakes people make with life insurance.

One of the biggest mistakes Bivens sees people making is delaying people getting insurance.

“It’s something that’s easy to put off or ignore,” he said. “But life insurance gets more expensive as you get older.”

And conditions associated with aging — such as heart disease, diabetes, and high blood pressure — can raise your premiums or even make it harder to qualify for coverage.

It’s hard to think about mortality when you’re young and relatively healthy, but at this time you should make a plan for the future.

State Farm has consistently high customer service ratings and offers several affordable long-term life plans. If you bundle your policy with home or auto coverage, you may also be eligible for a discount.

Life insurance policies are written in legalese, so it’s not unusual for people to sign up for a policy and still not understand what it does and doesn’t cover. Fees and associated costs. “It can sometimes be hidden in a prospectus or sales materials,” Bivins said.

Fortunately, insurance companies are required to offer what is called a “free check period,” during which you can cancel your policy for any reason and get your money back.

The length of the free screening period varies by state and insurance company, but is generally between 10 and 30 days. Use this time to review all terms and conditions, ask any follow-up questions and make sure you get the coverage you want and need.

Many people who need life insurance don’t get it because they think the premiums are too expensive. But term life insurance is an affordable alternative worth considering.

Your policy expires after a specified period (generally 10 to 30 years) and yields no cash value. But term life is usually much cheaper than whole life insurance: A 30-year-old non-smoker will pay an average of $26 per month for a $500,000 life insurance policy good for 20 years, according to Policygenius, compared to $440 per month. On average for an equivalent whole life policy.

“Term life insurance has never seemed to be a better value than it is today,” Bevins says.

Guardian is CNBC Select’s top-rated life insurance company, in business since 1860 and rated A+++ in Financial Strength from AM Best, the agency’s highest rating. If your needs change, policyholders can convert their term life insurance policy to a permanent life policy for the first five years without additional fees or a new medical examination.

If you are looking to create a financial legacy for your heirs, life term may not be the right choice. But if you want to make sure your kids have money for college or pay for your house, it might be a good fit.

Some social media personalities have begun promoting permanent life insurance policies — including whole life and universal life insurance — as a way to build wealth while you’re still alive, including in retirement.

While these policies accumulate cash value that you can benefit from later, using a life insurance policy as an investment is a risky proposition.

This money can help with expenses related to long-term care or terminal illness, but it is unlikely to be enough to be used as a significant portion of your retirement fund.

“I think there are other alternatives that might work better in the long run,” Bivens says.

He recommends using a Roth IRA, which allows you to make tax-free withdrawals in retirement (considered age 59 1/2 by the IRS). In 2024, maximum contributions will be $7,000 for those under 50 and $8,000 for those 50 or older.

The Charles Schwab IRA has no minimum deposit for active investing and a variety of retirement planning tools to help you stay on track.

Fidelity’s diverse selection of no-commission-fee stocks, ETFs, and options trades is suitable for beginners. 24-hour customer service online and by phone and over 200 branches across the United States are available for personal assistance.

Many consumers stumble upon avoidable life insurance risks because they are confused or misinformed. Understanding when you should purchase a policy, what is available and what you are signing up for is essential.

At CNBC Select, we work with experts who have specialized knowledge and authority based on relevant training and/or experience. For this story, we interviewed William Bivins, a certified financial planner at Cypress Capital in Franklin, Tennessee.

At CNBC Select, our mission is to provide our readers with quality service journalism and comprehensive consumer advice so they can make informed decisions about their money. All life insurance The review is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of life insurance products. While CNBC Select receives a commission from affiliate partners on many offers and links, we create all of our content without input from our commercial team or any outside third party, and we pride ourselves on our journalistic standards and ethics. Check out our methodology for more information on how to choose the best life insurance.

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