Before we dive into the specific pitfalls to avoid when buying life insurance, let’s take a quick look at the basics. There are two main types of life insurance: term life insurance and permanent life insurance.
Term life insurance provides coverage for a set period of time, typically 10, 20, or 30 years. It is generally the most affordable option, as the premiums are based on the likelihood of death occurring during the term of the policy. If the policyholder dies during the term of the policy, the beneficiary will receive the death benefit. If the policyholder does not die during the term, the policy will expire without any value.
Permanent life insurance, on the other hand, provides lifelong coverage and typically has higher premiums. In addition to a death benefit, permanent life insurance also includes a savings component, known as the “cash value.” The cash value accumulates over time and can be accessed by the policyholder through loans or withdrawals. There are two types of permanent life insurance, including whole life, universal life.Â
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Now that we’ve covered the basics, let’s take a look at some common pitfalls to avoid when buying life insurance.