Top Mistakes People Make Buying Life Insurance

Most life insurance problems don't show up when you buy the policy. They show up years later, at claim time, when it's too late to fix them. These are the mistakes that cause the most heartache, grouped by when they happen.

Mistakes while shopping

• Waiting for a "better time." Prices rise with every birthday, and a new diagnosis can change what you qualify for overnight. The cheapest policy you'll ever buy is the one you buy today.
• Buying only on price. The cheapest quote may come with a two-year waiting period, a premium that rises every five years, or a term that ends before your mortgage does.
• Getting a quote from just one company. Carriers view the same health history very differently. One may rate you "standard" while another offers "preferred."
• Buying too little. A $25,000 policy pays for a funeral; it won't raise children. Run the numbers with a coverage worksheet.
• Relying on work coverage alone. It's usually small, and it rarely follows you when you leave.

Mistakes on the application

• Leaving things out. Not mentioning a medication, a past diagnosis or tobacco use is the number one reason claims get reviewed. In the first two years (the contestability period), a material misstatement can lead to a denied claim.
• Guessing on dates and doctors. Insurers check prescription databases and medical records. Have your medication list and doctor names handy before you apply.
• Saying "non-smoker" because you only vape or chew. Most carriers treat any nicotine as tobacco use. Cigars may be an exception with some carriers, but you have to disclose them.

Mistakes with beneficiaries

• Naming a minor child directly. Insurers won't pay large sums to a child, so a court may have to appoint a guardian for the money. Use a trust or a custodian under the Texas Uniform Transfers to Minors Act instead.
• Naming "my estate." The money then goes through probate, where it can be delayed and exposed to creditors.
• Never naming a contingent beneficiary. If your primary beneficiary dies before you, the payout may end up in your estate anyway.
• Forgetting to update after a divorce, marriage or death. The beneficiary form controls who gets paid, not your will.

Our beneficiary guide covers how to set this up correctly.

Mistakes after you buy

• Letting it lapse. Set up automatic payments. If money gets tight, call before you miss payments; there may be options like a reduced face amount.
• Not telling anyone it exists. Billions of dollars in life insurance go unclaimed because families don't know a policy exists. Tell your beneficiary and write it down.
• Replacing an old policy without comparing. A new policy restarts the contestability period and may cost more at your current age. Look carefully before you swap.
• Ignoring a term conversion deadline. Many term policies let you convert to permanent coverage with no health questions, but only until a certain age or year.

This guide is general education, not tax, legal or financial advice. Product features, issue ages and prices vary by carrier and state and change over time.