We all make mistakes. But some mistakes cost more than others. Some of the costliest mistakes are those that continue to haunt you for years. Life insurance mistakes can cost you in the short term and in the long term.
One of the biggest mistakes that I made regarding life insurance is letting my policy lapse. Luckily, I was still in very good health so getting my policy reinstated wasn't too much of a pain. FYI, please don't make this same mistake. You might not be so lucky.
Before you buy life insurance, make sure you consider your situation, and avoid these 4 stupid (and costly) mistakes:
1. Lying On Your Life Insurance Application
It's tempting to stretch the truth a little bit. A little "white lie" or "forgetting" to mention something on your life insurance application doesn't seem like a big deal, and what if it saves you money right now?
Unfortunately, this can be a costly mistake to make. While you might "get away with it" initially, and pay a lower premium at first, the life insurance company might call you on it later.
Besides, if it's an obvious condition, the insurance company is going to figure out. For example, I had a 30 year-old male apply for life insurance and he claimed he was 5'10" and 220lbs. After he had his medical exam, his actual height and weight were 5'8" and 240 llbs.
Ummmm....did you think they wouldn't notice you were 2 inches shorter and 20 pounds heavier?
Generally, the company has two years (check the policy) to challenge your assertions. If your little lie is discovered, the insurance company can jack up your rate, or even boot you from the policy -- leaving you with no coverage and the loss of all the premiums you paid.
2. Choosing No Medical Life Insurance
You can get life insurance without a medical exam? Sure you can -- if you are willing to pay for it. Paying for no medical life insurance usually means higher premiums for the entire time you have the insurance policy. That's a lot of money over time.
Instead, you are better off going through the medical exam required by the life insurer. You don't need to schedule an extra check up with your doctor; the life insurance company usually sends someone to draw your blood and take your weight, and perform other requirements.
3. Poor Health Habits
Any poor health habits you have can drive up your medical costs, and decrease your quality of life. And, on top of that, they will mean higher life insurance premiums. A smoker pays more in life insurance premiums because life insurance is all about risk assessment. If the company thinks you are going to die sooner rather than later, you are going to have a higher premium.
Poor health habits like smoking, heavy drinking, overeating, not exercising, taking drugs, and even working in a dangerous job can mean higher life insurance premiums.
Be smart about your good health, and your life insurance premiums will be lower.
4. Failure to Ask for a Reassessment
What if you have improved your health over time? In that case, don't be afraid to ask for a reassessment of your health. If you have quit smoking or if you have been off drugs for more than a year, or if you've managed to lose -- and keep off -- 25 pounds, you owe it to yourself to ask for reevaluation.
Ask your insurer if you can be moved to another class now that you have improved your health and your risk profile has changed. You may have to undergo another exam some carriers may use the exam from the first company. But if you can show that you are healthier, you stand a good chance of having your insurance premium lowered.
There's no reason to keep paying a higher premium when you deserve a lower one.
5. Using an Inexperienced Non-Independent Agent
If you're healthier than Superman then this doesn't apply to you. Healthy individuals shouldn't have an issue getting cheap life insurance from most of the top carriers. If, however, you have some sort of health condition or are practicing some of the poor health habits we mentioned earlier, then you could stand to pay 25-50% more if you don't follow this tip.
Why so much? Most consumers don't realize that every insurance company has different underwriting guidelines depending on your condition. Let's say that you suffer from diabetes and you need to buy life insurance. One insurance company may approve you at a Preferred rating while an entirely different company may offer you a Standard rating. The difference between the two could be a 50% increase in your premium. Ouch!
If your life insurance agent isn't aware of what the best carriers are for diabetes, you could be left paying way too much. Even worse is if your insurance agent is not independent then they won't be able to shop it to multiple carriers and get you the lowest rate.
That's why it's uber important to have an experienced independent agent working for you. Not taking the time to find the right agent could be a very costly mistake.