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Top Ten Pitfalls of Life Insurance

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Before you take out a life insurance policy, be aware of these potential gaps in coverage. By becoming aware of these possible loopholes, you will be able to choose your life insurance policy wisely.

1. Decreasing coverage.

There are policies where the face value decreases over the term of the life insurance. This works for some people, but make sure it works for you before you take it up.

2. Unsure coverage.

A life insurance policy has specific terms of coverage. For instance, beneficiaries of those who die by their own hands can not claim death benefits. Read the specific claim conditions of your life insurance policy.

3. Inadequate coverage for disability.

Even if your policy gives you both life and disability coverage, check how much disability benefits you can claim and under what types of circumstances disability coverage can be enforced.

4. Inadequate face value.

You should buy an insurance policy that covers your family's needs for at least a year. It should be even greater if you think you'll have lots of debts that need paying.

5. No withdrawal option.

Some life insurance policies with a cash value component let you withdraw your money after a certain period of time. However, some insurance policies – especially those with a very low premium – will not return your money. All those years of payments will then be lost.

6. Depreciated value.

If you get the life insurance policy that has an investment component (your payments will be used to invest in high-yield accounts and a percentage of the proceeds will be returned to your policy), bad investment decisions can leave you with a depleted policy and face value.

7. No death benefits.

If you die and your beneficies begin claims procedures, insurance companies may still refuse to pay them if you omitted an important (even a trivial) piece of information from the insurance application form. They can refuse coverage on the grounds that you have not been entirely honest with the company.

8. Wrong beneficiary.

When you apply for your life insurance, you have to name your beneficiary. Make sure that the name of the beneficiary may be changed at some later date in case you change your mind or in case your beneficial dies before you do.

9. Loss of benefits or severe depreciation for one unpaid premium.

What happens if you miss one premium payment? You should make sure that your beneficies will not lose your death benefits or that these benefits will not be significantly reduced after just one missed premium payment.

10. Not enough to retire on.

If your insurance agents insure you that your whole or permanent life insurance policy is a good investment, they may be trying to mislead you. The typical life insurance covers you in case of death. While the cash value equivalent of your policy may be withdrawn in full upon maturity or converted to an annuity plan, this still does not make a life insurance policy a good retirement plan. You get the most benefit from it after death, and you do do better to get a different plan – one that has a higher rate of interest – you're your retirement.



Source by Mark A. Weiss

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