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You want to create financial freedom and leave a generational legacy. Life insurance can be one of the most powerful tools for doing so.

But to make life insurance work for you, it has to be the right type, and structured properly.

To maximize the benefits of life insurance in your financial plan, avoid these five mistakes:

Mistake #1: Not Getting Enough Insurance

The most common mistake people make when purchasing life insurance is got getting enough coverage.

Inadequate coverage can leave your loved ones financially vulnerable in the event of your death.

According to Life Insurance Marketing and Research Association (LIMRA), only 52% of Americans have some type of life insurance coverage. 106 million Americans don’t believe they have adequate life insurance coverage (source).

However, even those who believe they have adequate coverage probably don’t.

When determining the appropriate amount of coverage, it’s essential to consider various factors. These include:

  • Replacing lost income
  • Covering outstanding debts
  • Funding future expenses such as education or retirement
  • Maintaining the family’s standard of living

While a $1 million policy may seem substantial, it’s vital to assess whether it adequately addresses the family’s long-term financial needs.

Life insurance isn’t just about a lump sum payout; it’s about ensuring the continuity of financial support for dependents.

Mistake #2: Not Getting the Right Type of Insurance

The next big mistake people make with life insurance is getting the wrong type.

Term life is the most common type of life insurance sold. It is in force for a specified period, after which your coverage drops.

Permanent policies, such as whole life or universal life insurance, offer lifelong coverage and cash value growth.

Term life is popular because it’s relatively cheap and more people can afford it than can afford permanent policies.

However, you have to consider price, cost, and value. Term insurance is cheap for a reason: It gives you far fewer benefits than permanent insurance.

With term insurance, if you don’t die in the specified term, all the premiums you’ve paid are lost. And when you go to renew your policy, you’ll find that the premiums have increased dramatically. In many cases, they are no longer affordable.

The other danger with term policies is that you can become uninsurable during the term. This means you won’t be able to renew when the term is up.

If you’re serious about financial freedom and building generational wealth, whole life insurance offers the most benefits by far.

If you have limited cash flow, term insurance can serve as a cost-effective solution before purchasing permanent insurance.

However, if you get term insurance, it’s critical that it is convertible term. This means you can convert it into a permanent policy when you’re able to afford it.

Mistake #3: Using Group Insurance as Your Primary Insurance

Group insurance provided by employers often serves as a convenient option for securing life insurance coverage.

However, relying solely on group insurance can pose significant risks.

Group policies typically terminate upon leaving employment, leaving individuals without adequate protection during transitional periods.

Moreover, group insurance may impose aggregate limits, capping the total payout in the event of multiple claims within the group.

Additionally, individuals with favorable health statuses may receive less favorable rates under group policies, as premiums are often based on group demographics rather than individual risk profiles.

While group insurance can complement existing coverage, it’s essential to maintain individual policies to ensure comprehensive protection and flexibility.

Mistake #4: Structuring Your Policy the Wrong Way

One reason whole life insurance gets a bad name is because a lot of agents don’t structure it properly. A properly-structured whole life policy prioritizes cash value accumulation in the early policy years.

Policies structured without emphasis on cash value may result in minimal growth during the initial years, delaying the realization of policyholder benefits.

Agents and brokers may prioritize commissions over policyholder interests, recommending policies that generate higher upfront commissions but offer limited cash value accumulation.

To optimize cash value growth, policyholders should consider policies designed to maximize cash value from inception. Also consider features such as paid-up additions and flexible premium payment options.

Mistake #5: Buying from the Wrong Company

Choosing the right insurance company is paramount to the long-term viability and reliability of a life insurance policy.

All life insurance companies are not the same. Not all of them possess the financial stability and track record necessary to fulfill policy obligations over time.

When selecting an insurance provider, prioritize companies with a strong financial standing, demonstrated longevity, and a history of dividend payments to policyholders.

Mutual life insurance companies, where policyholders have ownership rights and share in the company’s profits, offer an added layer of security and alignment of interests.

Additionally, you can evaluate a company’s performance during economic downturns and historical dividend payments. These provide insights into its ability to weather financial challenges and fulfill policy obligations.

In conclusion, avoiding these common mistakes is essential to making informed decisions when purchasing life insurance.

We’re here to help you avoid mistakes and maximize the value of life insurance in your financial plan.

Schedule a quick consult now to see if we’re a good fit for each other and how we can help you.