Common Insurance Mistakes We All Make
We all know we need insurance but it’s not usually at the top of our priority list. Insurance is a valuable tool to protect our families from unforeseen events that can severely damage their financial futures, but it does not often get much of our attention. We have compiled a list of common insurance mistakes so you can determine if you are currently making any of them and hopefully properly insure you and your family before it is too late.
· Not having any life insurance – Life insurance has two basic purposes: to provide estate liquidity and to provide sufficient assets for a surviving family to live on after the wage earner has passed away.
· Having too much life insurance – If substantial assets are accumulated, then survivors may already be adequately provided for.
· Not having life insurance on a non-working spouse – The value of a “non-working” spouse, which can be substantial, is often overlooked.
· Buying life insurance on children – Such coverage rarely makes economic sense unless the policy pays interest which is tied to current market rates. The premium dollars could be better spent by contributing to a custodial account for the child’s future education needs.
· Underinsurance of personal residences – Most homeowners obtain homeowner’s coverage and then forget about it. They may fail to realize that if construction costs increase at 8% per year, the replacement cost of a property doubles every nine years. Determine what your house (not countin the land) is really worth and then see if it matches your coverage.
· Having medical insurance with inadequate lifetime limitations -- With the ever-increasing cost of medical care, it is easy to incur very high expenses for an extended hospital stay. Many policies cover only $100,000 to $150,000. The minimum coverage an individual should have is $250,000 to $500,000.
· Not having disability insurance – You’ve probably heard it before. Your family’s single greatest asset is more than likely your ability to earn a living.
· Having a disability policy with too restrictive a definition of disability – Many policies cease coverage if the insured can perform any occupation after the second year of coverage.
· Holding a disability policy after retirement – Make sure you aren’t paying premiums in retirement.
By W. Barton Close CFP®
Certified Financial Planner Board of Standards, Inc.,
owns the certification marks above, which it awards
to individuals who successfully complete initial and
ongoing certification requierments.