4. Considering illustrations as fact
When selling permanent insurance policies, agents like to give people a form called an “illustration” that demonstrates the cost of insurance and the future cash value of the policy. But be aware that the numbers you see on life-insurance illustrations are merely projections. They are not guarantees (unless you see that word printed there!) and the reality could be very different from what is illustrated. The actual interest rate earned by the policy might be lower than projected, the premiums might be higher, and other costs could rise if the policy is a non-guaranteed contract. Don’t give too much credence to policy illustrations.
5. Viewing the purchase as a one-time activity
As with the rest of financial planning, evaluating life insurance needs is an ongoing process, not a one-time product purchase. If you bought a policy 20 years ago, your death benefit may be much less than what you need today, because your income and expenses are likely higher than they were. It’s best to review your insurance needs every few years, or whenever you’ve experienced a major change in income/expenses, marital status or the birth or death of a family member.
6. Are you a tobacco user?
You’ll get far better rates if not. Tobacco users usually pay more than twice as much for insurance as nonusers. Some companies treat tobacco use more favorably than others, so it’s important to comparison shop.
7. Cancelling a policy before you obtain the new one
Term life insurance rates have dropped dramatically in recent years, making it worthwhile in many cases to switch insurance companies. But if you’re going to replace a policy for a new, lower-cost one, don’t do it until the new one is in force.