5 Mistakes Seniors Make When Buying Life Insurance

The complexity of some life insurance plans can make it challenging to know which type of insurance to choose, how long the policy should last, and who the death benefit should go to.

All this can make choosing the right life insurance policy feel like an overwhelming task. But it doesn't have to be difficult. Taking the time to ask yourself a few questions and compare policies will help you make the right decision.

Here are five mistakes seniors sometimes make when choosing a life insurance plan, and how to avoid them.

1. Buying whole instead of term insurance

Most people will benefit more from term life insurance than whole life insurance. Term insurance is for a set period, like 10 or 20 years, while whole life insurance policies typically last for your entire life.

Term insurance makes a lot of sense for seniors because the timeframe for holding the policy is shorter and the policies are usually much cheaper. For example, a 60-year-old male may spend $77 per month on term life insurance, while whole life insurance may cost $174 per month, according to Progressive.

When living on a fixed income and potentially dependent on Social Security, you want to avoid expensive insurance costs that add to your budget.

2. Not asking yourself why you want life insurance

Not all seniors need life insurance. If your debts are paid off and your family doesn't need an inheritance, you may not need life insurance.

But if you want to help cover the cost of your funeral, leave an inheritance to family members, or provide an aging spouse with more money, then having a life insurance policy is an excellent option. Some seniors choose a life insurance policy because it usually isn't subject to estate or income taxes.

In contrast, if you leave an individual retirement account (IRA) to a beneficiary, the distributions from that account may be taxable. Knowing why you want a life insurance policy will help you decide on the right one.

3. Not comparing policies

Not all life insurance providers use the same calculations to determine what type of policy to offer and for how much. Shopping around could help you find a better policy and cheaper premiums.

The good news is you don't have to spend much time comparing life insurance policies. It's easier than ever to do this online; comparing policies will help you find the best life insurance.

When comparing policies, look at the coverage level, if there's a physical exam required, and how much your monthly premiums will cost. It's also a good idea to read through life insurance reviews to find the best provider for you.

4. Not listing the right beneficiaries

You'll have to decide who receives the death benefit if your life insurance policy is enacted. It could be a spouse, child, or anyone you choose, but you'll have a few things to consider before deciding.

For example, if you leave the death benefit to an adult child, then it will most likely avoid entering the court system and will be paid out directly to them. But if you want to leave your life insurance to your minor grandchildren, you may want to set up a life insurance trust to avoid the payout getting hung up in the court system.

You should also list a contingent beneficiary. This person will receive the death benefit if your primary beneficiary is unable to be found or has passed away.

5. Buying too much coverage

Seniors who buy life insurance likely have different goals than, say, those with a family. Younger people may want to leave money to their families to cover future education expenses for their kids, pay off their mortgage, or make up for their loss of income when they pass away.

While you may not have kids to take care of any longer, you have other financial responsibilities. For example, 10 million Americans aged 65 and older have a monthly mortgage payment. You may want life insurance to help your spouse pay off your home, but make sure you don't pay for more coverage than you need to meet your goals.

Leaving an inheritance behind can significantly help your family and friends, but it's important to avoid some of these mistakes when choosing a policy. Take the time to compare life insurance plans, decide on beneficiaries, and consider what you want the policy to help pay for. Doing so will ensure you find the right policy for you.