Common Insurance Mistakes We All Make
Last edited: 8/09/2011We all know we need insurance but it’s not usually at the top of our priority list. Insurance is a valuable tool to protect our families from unforeseen events that can severely damage their financial futures, but it does not often get much of our attention. We have compiled a list of common insurance mistakes so you can determine if you are currently making any of them and hopefully properly insure you and your family before it is too late.
- Not having any life insurance – Life insurance has two basic purposes: to provide estate liquidity and to provide sufficient assets for a surviving family to live on after the wage earner has passed away.
- Having too much life insurance – If substantial assets are accumulated, then survivors may already be adequately provided for.
- Not having life insurance on a non-working spouse – The value of a “non-working” spouse, which can be substantial, is often overlooked.
- Buying life insurance on children – Such coverage rarely makes economic sense unless the policy pays interest which is tied to current market rates. The premium dollars could be better spent by contributing to a custodial account for the child’s future education needs.
- Underinsurance of personal residences – Most homeowners obtain homeowner’s coverage and then forget about it. They may fail to realize that if construction costs increase at 8% per year, the replacement cost of a property doubles every nine years. Determine what your house (not counting the land) is really worth and then see if it matches your coverage.
- Having medical insurance with inadequate lifetime limitations -- With the everincreasing cost of medical care, it is easy to incur very high expenses for an extended hospital stay. Many policies cover only $100,000 to $150,000. The minimum coverage an individual should have is $250,000 to $500,000.
- Not having disability insurance – You’ve probably heard it before. Your family’s single greatest asset is more than likely your ability to earn a living.
- Having a disability policy with too restrictive a definition of disability – Many policies cease coverage if the insured can perform any occupation after the second year of coverage.
- Holding a disability policy after retirement – Make sure you aren’t paying premiums in retirement.
This material was prepared by Raymond James for use by its financial advisors.
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