If you already have life insurance, you've taken an important step to help ensure your family is taken care of in case of an unexpected event. But just having it isn't always enough.
Do you have the right type or amount? Have you reviewed your policy lately? These are the five most common life insurance mistakes people make.
1. Having the wrong amount of coverage
Over one third of households would feel the financial impact of the loss of a primary wage earner in one month or less.* Are you one of them? We generally recommend having coverage equal to 7-10 times your annual salary. For a more accurate amount, use our life insurance needs calculator to get a quick estimate.
In addition, we generally recommend using the acronym L-I-F-E as a guide, to help ensure you have enough insurance to cover: Liabilities, Income needs for ongoing living expenses, Final expenses, and Education expenses for your children. Plus, any additional amount you'd like to leave your loved ones or charity.
Once you have that number, compare it to your current policy amount and see how close you are.
2. Having the wrong type of policy (term vs. permanent)
Do you need insurance to cover you while you have a mortgage to pay or children at home? Or are you looking to build cash value in a policy that you can later pass on to your heirs? Each insurance type has its own advantages. Here are the basic differences:
Term insurance covers you for a specific time frame, typically fewer than 20 years. It's the most basic, and affordable, type of insurance, which makes it a popular choice for young families who are balancing debt and saving for the future.
Permanent Insurance provides lifetime coverage and allows you to build cash value that you can later pass on to your beneficiaries. It's more expensive than term insurance, but the premiums typically don't increase with age. Learn more about the differences between these two insurance types here.
3. Relying solely on employer-provided insurance
Life insurance coverage provided by your employer might be OK if you're single and without kids, but if you have dependents and large financial obligations, it may not be enough. Employer policies rarely cover more than three times an annual salary (the general recommendation is 10 times your annual salary) and sometimes only cover as little as six months' salary. Plus, if you change jobs, you can't take your policy with you.
4. Neglecting to designate beneficiaries (or neglecting to update them)
Naming beneficiaries helps ensure your insurance money goes directly to the people you intended, helping them avoid probate (the legal process of distributing your estate). This could save your family time and expense. If you have insurance from Edward Jones, your financial advisor can help you set up beneficiaries for your policy.
5. Ignoring your policies
Life insurance is an important part of your overall financial strategy and should be reviewed at the very least every three to five years. If you've recently gotten married, divorced, welcomed a new baby into your home or changed jobs, it's time to review your policy to ensure your coverage amount and policy type still work for your situation.
Want to know more about life insurance?
*Source: Life Happens and LIMRA Insurance Barometer Study, 2018
Edward Jones is a licensed insurance producer in all states and Washington, D.C., through Edward D. Jones & Co., L.P., and in California, New Mexico and Massachusetts through Edward Jones Insurance Agency of California, L.L.C.; Edward Jones Insurance Agency of New Mexico, L.L.C.; and Edward Jones Insurance Agency of Massachusetts, L.L.C.