16 Costly Life Insurance Mistakes to Avoid When Buying Coverage

The 16 costly life insurance mistakes to avoid when buying coverage are the following: 1. Buying Too Little Coverage, 2. Waiting to Buy Coverage, 3. Ignoring Term Length, 4. Not Comparing Policies, 5. Choosing the Wrong Type of Policy, 6. Buying the Cheapest, 7. Not Evaluating a Company’s Financial Strength, 8. Relying on Employer Coverage, 9. Misjudging Beneficiary Needs, 10. Improperly Listing Beneficiaries, 11. Underestimating Health Changes, 12. Not Considering Riders, 13. Overlooking Payment Options, 14. Failing to Understand Terms, 15. Not Considering Future Expenses and 16. Providing Incorrect Information.The 16 costly life insurance mistakes to avoid when buying coverage are the following: 1. Buying Too Little Coverage, 2. Waiting to Buy Coverage, 3. Ignoring Term Length, 4. Not Comparing Policies, 5. Choosing the Wrong Type of Policy, 6. Buying the Cheapest, 7. Not Evaluating a Company’s Financial Strength, 8. Relying on Employer Coverage, 9. Misjudging Beneficiary Needs, 10. Improperly Listing Beneficiaries, 11. Underestimating Health Changes, 12. Not Considering Riders, 13. Overlooking Payment Options, 14. Failing to Understand Terms, 15. Not Considering Future Expenses and 16. Providing Incorrect Information.

Key Takeaways

  • Don’t be in a rush or pressured by someone else to make a quick decision about what life insurance policy to buy; take your time to complete the necessary research to know all of your options.
  • Consider the depth and breadth of your future expenses to arrive at a life insurance coverage amount that will be adequate to care for the future financial needs of your family.
  • If you reach a point or confusion or have unanswered questions about buying the right life insurance policy for your life situation, consult with an experienced financial representative or insurance agent who can offer you clear explanations and professional guidance.

Importance of Avoiding Mistakes When Buying Life Insurance

Choosing life insurance can seem complicated and overwhelming, but with the proper knowledge and guidance, you can avoid the most common mistakes people make when buying life insurance. In order to find the right life insurance for your life situation, you first need to understand the different types of life insurance policies that are available and determine how much coverage you will need.

Then you can start to actually compare costs and assess the financial ratings of various insurers to narrow down your choices and make an informed decision. In addition, you may want to consult with an experienced financial representative to get some professional guidance along the way.

The best way to help protect your family’s finances when purchasing a life insurance policy is to avoid the most common mistakes that people often make — pitfalls related to specific types of life insurance policies, coverage, policy cost, an insurer’s financial stability, beneficiaries, health changes, policy riders, payment options and future expenses.

1. Buying Too Little Coverage

Determining how much life insurance you need depends on a variety of factors. These include your:

  • Family size
  • Employment status
  • Age
  • Owning a business
  • Annual income
  • Anticipated final expenses
  • Outstanding debt
  • Existing life insurance and assets
  • Future life and financial goals

Being underinsured is one costly mistake to avoid. If you are the primary breadwinner for your family, you should consider how much coverage you might need to replace your income. An important part of that equation is to project how many years of replacement income your loved ones would need to continue their current standard of living if you were to suddenly pass away.

For example, if you earn $60,000 a year, a $300,000 term life policy may sound like a lot of coverage, but the death benefit would only cover your lost income for a period of five years. Would that be sufficient coverage for your family?

Besides income replacement, you also should consider what additional expenses your family would face, which might include:

  • Funeral and burial costs
  • Medical expenses
  • Mortgage payments
  • Other loan payments (e.g., student or car loans)
  • Future education for your children (including college tuition)
  • Ongoing daily living expenses

Keep in mind that other guaranteed sources of income that you have planned for retirement — like Social Security, pension plans and annuities — may not be available to your surviving spouse for many years after your death. The right life insurance policy can provide an invaluable death benefit and fill in any financial gaps to help support your family until these other sources of income become viable.

2. Waiting to Buy Coverage

In general, the younger and healthier you are when you buy life insurance, the cheaper your premiums are likely to be. That’s because life insurance premiums depend on a variety of factors, which include your age and general health condition. If you are looking to purchase a life insurance policy at the most affordable rate, you may be better off buying coverage sooner rather than later. Waiting to buy coverage may end up costing you more because life insurance rates tend to go up as people get older and develop illnesses later in life.

Be aware that in some cases, certain diseases (like cancer) or health issues may make you an ineligible candidate for life insurance coverage. Consequently, if you wait too long to buy life insurance, your age or overall health condition may preclude you from purchasing the kind of coverage you want.

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3. Ignoring Term Length

If you decide to purchase term life insurance, it’s essential to select the right term length. Typically, you can buy a term life policy for a period of 10, 15, 20 or 30 years. If you underestimate the term policy length you need, your premiums may increase significantly by the time you need to renew the policy or buy a new one. On the other hand, you don’t want to purchase a term policy length that is longer than you need either.

For example, let’s say you are married without any children and have 10 years left on your home mortgage — and you also are 10 years away from retirement. Getting a 10-year term life insurance policy may make the most sense to cover the cost of your remaining mortgage payments; after 10 years, you may no longer need any additional life insurance. Purchasing a 15- or 20-year term life policy in this situation might be too long of a term.

However, if you are a young married couple with one-year-old twins who recently purchased a new home, then you may want to consider a 20- or 30-year term life policy to provide a large enough death benefit amount to financially support your children until they reach age 21 or to cover the duration of your 30-year mortgage. Your specific life situation will influence and ultimately determine the right length of coverage to help secure your family’s future.

4. Not Comparing Policies

Whether you are searching for a mortgage loan, a student loan, health insurance, car insurance or life insurance, it behooves you to comparison shop in order to find the best deal. But remember that the first low policy offer you find may not necessarily be the one you should take. For example, you may be able to secure a higher coverage amount at a lower premium price. So shop around and do your research.

During your review of various policies, however, be sure to compare apples to apples and oranges to oranges. Comparing premiums for a $200,000 whole life policy and a 10-year $200,000 term life policy is not equal or fair because whole life is permanent insurance that lasts a lifetime and term insurance only offers you coverage for a limited period of time (in this case 10 years). Make sure when you are comparing premiums from different insurance carriers that the type of life insurance and coverage amounts are the same.

It’s advisable that you determine the type of life insurance and the coverage amount you want before you start comparing premium costs. That way you will be assessing the specific life insurance policies, their coverage amounts and their corresponding premiums more accurately across the board.

5. Choosing the Wrong Type of Policy

Term life insurance and permanent life insurance (whole life and universal life) are designed to meet different financial needs, and as a result, have very different features and benefits.

Choosing the wrong type of policy can potentially leave your family vulnerable at a time when they need insurance protection the most. For example, if you are married with four children under the age of 10, getting a 10-year term life insurance policy only guarantees you coverage for the next 10 years. If your oldest child is nine years old right now, your life insurance coverage would end when they are 19.

However, your other three children would still be minors after 10 years and would potentially (and probably) need ongoing financial support if you were to die after your 10-year term life policy ends. In this scenario, you may want to choose a different policy with a longer term, a convertible term life policy that would allow you to convert to permanent coverage at a later date or perhaps a whole or universal life insurance policy instead.

Below is a comparison of benefits for term life, whole life and universal life:

Comparison of Benefits TableComparison of Benefits Table

6. Buying the Cheapest

As you shop around for the most affordable life insurance, don’t be tempted to simply buy the cheapest policy you find. You also have to consider what exactly you are getting in return for your money — in other words, the different features and benefits of the specific kind of life insurance policy for the coverage amount you want.

Remember that term life insurance is generally cheaper than permanent life insurance, which includes whole life and universal life. Term life covers you for a limited and specific period of time (e.g., 10, 15, 20 or 30 years), whereas whole life covers you for your entire life, as long as you continue to pay your premiums. Because whole life generally offers you coverage for more years than term life, it costs more as a result.

But you also need to consider your financial needs with regard to what is your “cheapest” choice of life insurance. If you only need life insurance for a period of 20 years to cover the remaining years on your home mortgage, then a term life policy might be your “most affordable” option.

When it comes to buying life insurance, so much depends on your particular station in life and what your short- and long-term financial needs and goals are. Consequently, the cheapest policy may not be the best option for you in the long run.

7. Not Evaluating a Company’s Financial Strength

When you buy a life insurance policy, you want to feel extremely confident that your insurance company has the financial strength to guarantee the payout of your policy’s death benefit to your beneficiaries. You do not want to be doing business with an insurer that is financially insolvent or disreputable. That’s why it’s important to research a life insurance company’s financial strength to evaluate their reputation in the industry before deciding whether or not to buy a policy from them.

Insurance companies usually have their financial ratings in prominent, easy-to-find locations on their websites. The following independent agencies evaluate the financial strength of life insurance companies and review whether they have the necessary resources to meet their financial obligations to policyholders:

You want to see designations of “excellent,” “superior” or “strong” from these agencies when evaluating the financial strength of the various insurance carriers you are considering. These designations are positive indicators that an insurer does have the financial resources it needs to make good on its life insurance contracts with policyholders.

8. Relying on Employer Coverage

Another costly mistake that people can make is assuming that their employer-provided life insurance gives them sufficient coverage. Do you believe that the life insurance policy you have with your employer — which may only provide your beneficiaries with a death benefit equal to one or two times your annual salary — is enough insurance to provide for all the future financial needs of your family? Think carefully about the types of expenses your family would face in the event of your death.

One general recommendation for calculating how much life insurance coverage you may need is to multiply your annual income by 10. For example, if you earn $50,000 a year, then you might want $500,000 in life insurance coverage. However, you may want to consider an age-based calculation method instead, which accounts for additional years of lost income. If you use this estimation method, CCN Underscored Money suggests the following:1

Sample Life Insurance Coverage Estimations TableSample Life Insurance Coverage Estimations Table

Keep in mind that employer-provided life insurance is designed to provide you with a baseline level of coverage. However, the actual — and more realistic (based on your personal financial situation) — amount of coverage you may need could be significantly more.

9. Misjudging Beneficiary Needs

If you don’t have a reasonable estimate of what your beneficiary’s future financial needs will be, you may fail to purchase the right amount of coverage and the most appropriate type of life insurance policy. Doing your financial homework will pay off in this regard.

For example, let’s assume that your spouse does not work and that you are the only wage-earner for your household. If your spouse if a stay-at-home parent raising three young children, you should work together as a family to evaluate your future financial needs in case something happens to you and your income suddenly stops.

In addition to figuring out your income replacement and final expenses — which could include funeral costs, medical bills and probate court fees — it’s important for you to assess how much money your spouse and children would need in the future to cover their everyday as well as future expenses. These financial needs might include expenses for:

  • Daily living (e.g., groceries, gas, etc.)
  • Health and dental care/insurance
  • Additional medical care (e.g., chronic health conditions)
  • Special needs (e.g., physical disabilities or neurodiversity)
  • Daycare for younger children
  • Private school tuition
  • College funding
  • Mortgage/rent
  • Outstanding credit card debt
  • Auto loans
  • Student loans
  • Personal loans
  • Weddings/special life celebrations

There may be other expenses not on this list that you and your spouse may identify as your review and evaluate your family’s future needs. This is a key part of making sure you have enough coverage.

10. Improperly Listing Beneficiaries

Be thoughtful about choosing your beneficiaries, and be sure to list them accurately on your policy. Life insurance provides an important death benefit to the person or persons you select to receive this money after your passing. However, if your beneficiaries are improperly listed, your death benefit may not be distributed according to your wishes.

It’s generally recommended that you do not list a minor (someone under the age of 18) as your primary beneficiary unless this person is truly your sole beneficiary. A better approach is to list your spouse or another close adult relative as your primary beneficiary and assign your adult or minor-age children as your secondary beneficiaries.

This way the death benefit can be paid to the adult person you select to be responsible for managing this money and using it to support your family members. Remember that you may want to consult with a licensed insurance agent and/or an attorney for support in creating a future financial plan to care for your loved ones.

11. Underestimating Health Changes

Life is unpredictable, and you have no way of knowing what your health may be like 10, 20 or 30 or more years from now. As you get older, health conditions naturally change — which is why it’s recommended to buy life insurance when you are young and healthy because that’s when it’s most affordable.

When you buy life insurance later in life, premium costs are more expensive due to the increased risk that health problems cause for insurance carriers. This additional risk is passed on to you financially through higher premium rates. In addition, some pre-existing conditions — such as high blood pressure, diabetes and cancer — can not only raise your premiums but in some cases may even disqualify you from eligibility for certain kinds of policies during the underwriting process.

The longer you delay your buying decision, the more expensive your policy is likely to cost. And depending on your health, you run the risk of being denied coverage for the type of life insurance you want.

12. Not Considering Riders

Life insurance riders are options for you to customize your coverage, based on your specific needs and life circumstances, by adding special features or benefits. Adding certain riders (most of which are available for a modest extra cost) allow you to enjoy expanded protections to help protect your loved ones and safeguard their future financial security. You can choose to add riders to whole life, universal life and term life policies.

Some of the most common life insurance riders include the following:

  • Accelerated Death Benefit Rider — allows you as the policyholder to receive a portion of the death benefit while you are still alive, under specific circumstances.
  • Critical Illness Rider — provides a lump sum benefit to the policyholder if you are diagnosed with one of the specific critical illnesses covered by the policy.
  • Waiver of Premium Rider — covers or waives premiums in the event the policyholder becomes seriously ill or disabled and you are unable to afford paying your premiums.
  • Accidental Death Benefit Rider — provides an additional payment on top of the basic death benefit (paid to the beneficiary) if the insured dies as a result of an accident.
  • Child Term Rider — provides coverage for the policyholder’s children in the tragic event of a child’s death.
  • Guaranteed Insurability Rider — allows the policyholder to buy additional insurance coverage at specified intervals without needing to take a medical exam or provide proof of insurability.

There are many other available kinds of riders — which include long-term care, term conversion, family income, guaranteed renewable, return of premium and chronic illness riders — that you can learn more about the different riders before making your decisions on what to purchase. For additional information and guidance on what riders may be most suitable for your particular life situation, consult with an experienced financial representative or insurance agent.

13. Overlooking Payment Options

Some people may avoid buying life insurance because they think it’s too expensive. Before you decide to throw in the towel, make sure you have considered all of your payment options.

For example, if you are looking for a policy that allows you to adjust the amount you pay for your premiums, you may want to consider universal life insurance, which is designed to give you more control over how you can manage your policy. With a universal life policy, you can change the amount you pay into the policy each year. If your budget is tight, you have the freedom to reduce your premium (as long as you have sufficient cash value to cover your monthly charges). As your annual income increases over time, you can decide down the road to increase your premium payments.

In addition, some universal life policies offers you flexibility in adjusting your death benefit over time as well, thereby allowing you to either decrease to a lesser death benefit or increase coverage without having to buy a new policy.

Ask your insurance provider or agent about all of your available payment options to make the most affordable choice for your income level and budget.

14. Failing to Understand Terms

Let’s face it, the life insurance has its own jargon and language, which can sometimes be intimidating and confusing, especially if you are unfamiliar or new to the life insurance marketplace. As you conduct your research on what life insurance policy is right for you and your family, make sure you understand any unfamiliar or confusing terminology.

Consulting with a financial representative or insurance agent or broker can be particularly helpful if this is your first time considering buying a life insurance policy. Experienced agents can help you review your current financial situation, assess your protection needs and make recommendations specific to your current station in life — whether you a single twenty-something, married with kids in your 40s or close to retirement. They can also translate the often confusing world of life insurance into more straight-forward and easy-to-understand language.

This can be most helpful once you get to the life insurance application stage. Be sure you ask for clarification if you don’t understand particular questions or terminology so you can provide truthful answers before the underwriting process begins. Then once you have your life insurance contract in hand, you will want to review it thoroughly to make sure everything is clear to you before signing it.

15. Not Considering Future Expenses

While it’s hard to know what your future financial situation will look like many years from now, it’s important to take time to imagine and consider what your future expenses may be in order to calculate the right coverage amount for your life insurance policy. Missing future expenses now may cause financial hardship for your loved ones later.

Here are some questions to ask yourself:

  • Do you need to think about funding your children’s or grandchildren’s college tuition?
  • Do you or your spouse have a family history of medical conditions that could increase the cost of your health care as you get older?
  • Do you have a loved one who will require your ongoing financial support after you’re gone?
  • If you are a homeowner, how soon do you plan on paying off your mortgage?
  • If you are a business owner, how do you want to protect your key employees and the future ongoing operations of your business?
  • What do you envision your standard of living to be after retirement?
  • Will you incur additional travel expenses in the types of vacations you want to take?

Do your due diligence to create as accurate and comprehensive a list of future expenses as you can in order to arrive at a life insurance coverage amount that will adequately help protect the future financial security of your loved ones.

16. Providing Incorrect Information

Providing incorrect information on an insurance application can lead to major problems and should be avoided at all costs. When you are applying for insurance, make sure you understand exactly what you are buying and include only truthful and accurate information on your application. Lying about anything on a life insurance application constitutes insurance fraud.

Purposefully omitting or lying about your health information can lead to your life insurance application being denied — or much worse — your beneficiaries not receiving their death benefit after you pass away. Be careful to fully disclose honest details about your income, occupation, hobbies, prescriptions and any other specifics related to your health or lifestyle.

Insurance companies work with multiple forms of documentation and will most likely be able to identify discrepancies between your insurance application and your medical files. Here are a few examples of what qualifies as false statements and misrepresentations on your life insurance application:

  • Age — Indicating that you are younger than you actually are.
  • Weight — Recording a lower weight if you are overweight.
  • Tobacco Use — Saying you don’t use tobacco when you smoke several times a month.
  • Dangerous Hobbies — Not disclosing that you participate in skydiving.

Bottom line: Always tell the truth on your life insurance application.


Knowing about these 16 common mistakes can help you avoid certain pitfalls during your search for the best life insurance policy. When in doubt, remember to ask for help. Consulting with an experience financial professional or life insurance agent can offer you support in sorting through your life insurance options so you end up with a policy that meets your future financial needs and goals, at a price you can afford.

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  1. How much life insurance do I need? CNN Underscored Money. https://www.cnn.com/cnn-underscored/money/how-much-life-insurance-do-i-need.

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