These 5 Life Insurance Mistakes Could Cost Your Family Thousands

Life insurance is a vital component of financial planning.

Financial planning includes determining how much auto, home, and business insurance is required to protect your assets. However, when it comes to life insurance, you're looking for a policy that will protect the people left behind when you die. There's no specific "trick" when it comes to finding the right policy, but there are some mistakes that can be costly. Here are five of them. 

1. Putting it off too long

One of the most significant risk factors for dying is age. The older we get, the closer we are to taking our final bow. Insurance companies know that and set their premiums accordingly. A young, healthy person will pay less for a policy than someone who's solidly into middle age and far less than someone who's enjoying retirement.

No one likes to think about death, but postponing the purchase of a life insurance policy can cost thousands of dollars over a lifetime. 

2. Counting on your employer

If you're a full-time employee of a mid- to large-size company, chances are you have some employer-sponsored life insurance. If that's all the coverage you carry, losing your job to another pandemic or layoff could leave you vulnerable. 

The best financial move is to consider any employer-sponsored coverage as a bonus, an add-on to the coverage you purchase and control independent of your workplace. 

3. Buying too little

It's easy to underestimate how much your beneficiaries will need to maintain their current standard of living if you die. While some financial advisers recommend you carry at least 10 times your current income, the amount of life insurance you need depends on how long your beneficiaries will need support. 

Let's say you earn $60,000 per year. Using the rule of buying 10 times your annual income, you would need a policy worth $600,000. But here are a few other expenses you may want to factor in:

• Paying off debts: If you carry $600,000 in life insurance but own a home, you may want to add enough to pay off the mortgage. If you're carrying other debts, like personal loans or credit cards, life insurance can help your beneficiaries pay them off too.
• Children's education: If there are kids in your life and you want to make sure they have the opportunity to go to college, add the estimated cost of their education to the death benefit. 
• Funeral expenses: Whether you want to be buried or cremated, funerals are expensive. Why not add those costs in while determining how large a policy you need to buy?

4. Allowing your policy to lapse

Life can throw some unexpected curveballs, including job loss, business failure, and serious illness. As you work with a licensed insurance agent to find the right policy, balance the coverage you need with a premium you can reasonably afford to pay -- even when things have gone south. 

5. Failing to reassess your needs

Your life insurance needs at age 22 will differ from those at age 40 or when you're 60. At least once a year, take a peek at your policy to remind yourself of how much you are carrying. Determine whether you need more to meet the growing needs of your beneficiaries or less coverage due to the amount of money you have amassed through the years. 

If you're interested in life insurance, the least expensive option is term life. As the name implies, term life gives you coverage for a specified period of time. Whole life insurance costs approximately six times as much, although some whole life policies allow you to build cash value. Carefully consider your budget and needs before purchasing a policy of any kind.