Three Life Insurance Mistakes That You Can Avoid Now

People buy life insurance for various reasons, but the most common one is income replacement. Life insurance money may be used to pay the mortgage, living expenses, college tuition, etc.

Buying a policy is not all you need to do to plan for the financial future of your loves ones in the event of your death. In other words, you cannot buy a policy, put in in your desk drawer and forget about it.

Below we will describe three most common mistakes people make about life insurance and how to avoid them now.

Mistake #1: You Forget That Your Life Insurance Rate May Increase.

When you buy a term-life policy, the insurance company guarantees that the cost of the plan will not increase during the initial coverage period. It may increase, however, after this period ends.

Most insurance companies do not inform policyowners of upcoming premium increases. They simply send invoices for a higher amount. The new premium amount may be many multiples of what you had been paying previously.

Every life insurance policy has provisions regarding changes in premiums. Some policies automatically renew once the premium is paid. What this means to you is that the policy will continue to stay in effect as long as you pay your premiums and the new increased rates may apply.

If you are unable to pay a higher rate you may either cancel the policy or let it lapse or apply for a lower rate by contacting the insurance company. Before you buy coverage, it is wise to have a consultation with a life insurance lawyer who can explain what to expect in terms of premium increases so you are prepared accordingly.

Mistake #2: You Do Not Update Your Beneficiary Designation. 

A beneficiary designation is a document in which an insured designates who will receive the proceeds of a life insurance policy. An insured signs this form and sends it to the insurance company.

In order for the designation to be effective, the insurance company must record it before the insured’s death. The form can later be changed, but any changes must be recorded prior to the insured’s death.

Many people simply forget to change beneficiaries after they get divorced leaving an ex-spouse the sole recipient of the proceeds of a life insurance policy. To protect these insureds, some states have enacted laws that automatically revoke a former spouse as a beneficiary on the policy.

But these laws will not control certain group life insurance policies that individuals buy through their employers. Thus, your ex spouse who mistakenly remained on the policy as the sole beneficiary may get the life insurance payout even if you divorced decades ago.

Similarly, if you get married and do not update your beneficiary designation, your spouse may have a claim for life insurance money even if you designated someone else as a beneficiary.

It is very important to keep beneficiary forms up-to-date. If you get divorced, married or your spouse dies, remember to amend your beneficiary designation.

Our life insurance attorneys help beneficiaries collect proceeds of a life insurance policy in many different situations and will give you guidance as to what to do now to protect your loved one’s interests in the future.

Mistake #3: You Believe You Are Still Covered Under a Group Policy After You Stop Being Part Of The Group.    

Various employers and professional associations offer life insurance to their employees and members at group rates. It saves you the time of searching for a policy on the open market, but there is a pitfall to group life insurance policies: in order to maintain coverage under the policy, you usually must keep your membership in the group current.

For example, if you stop full-time employment for any reason, your life insurance coverage may cease. We have handled many denied group life insurance claims and know how prevalent these cases are. If you stop working due to a long-term disability, be sure to read your group policy carefully or have a life insurance attorney review it for you to make sure you have coverage when you are out of work.

Companies usually offer conversion and portability options that will allow you to get an individual policy.

If you are planning retirement and your employer guarantees life insurance coverage during your retirement, you should be aware that that coverage may stop if the employer goes out of business.

Another thing to remember is that your dependents have a different eligibility requirement if they are covered under your group life insurance policy. For example, the coverage on your dependent children may automatically stop when they stop being full-time college students or reach a certain age. If you divorce, your former spouse may no longer be covered under your policy.

The best practice is to consult a life insurance attorney who will help you avoid these and other potential mistakes.

      Call us now at (888) 510-2212. Competitive contingent fees.

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About the author

Attorney Tatiana Kadetskaya has over 10 years of experience in life insurance law representing beneficiaries and policy owners. She is best known for successfully collecting denied and delayed claims and settling complex beneficiary disputes and interpleader lawsuits.

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