3 Costly Life Insurance Mistakes—Don’t Make These!

Three quick life-insurance tips that I think you’ll find interesting. Honest!

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I had a great phone call from an insurance expert a few weeks ago. Very sharp. She was noting how careless a lot of young couples are. They’ve got kids, but they have way too little life insurance. How often they don’t carry enough at all. I couldn’t agree more. In fact, I actually get upset with people sometimes about this.

Anyway, I was sharing some insights from over the years, and she thought they were interesting. So perhaps you will too. 1) I’ve seen this one a lot. A spouse has a very solid income, not a gigantic income, but solid, let’s say $100,000 a year. The second spouse is making $60,000 a year. So often the couple doesn’t carry insurance at all on the lower income spouse’s life.

The argument given me is if he or she died, the family’s finances would still be fine. The couple says to me, “Our income would drop, but hey, so would our expenses. No need for a second car. Dead people don’t eat.” Hey, fair points, but be careful here. The family’s losing 37.5% of it’s pre-tax income, but often it’s overall costs aren’t dropping by nearly that percentage.

Why? Because the surviving spouse doesn’t want to move, especially with kids just having lost a parent. It makes perfect sense. So the family’s biggest cost — housing is going down 0%… Also, there are sometimes new costs when this horrible tragedy strikes. The surviving spouse needs help with managing the children or if there’s no local family…

I see very few cases like this — that kind of family-income structure — where the lower-income spouse doesn’t need life insurance. 2) A couple gets divorced. We see that a lot. The separation agreement dictates that life insurance needs to be purchased by one or both spouses naming the other as beneficiary.

Makes perfect sense. In some cases, a surviving ex spouse could be exposed to lost alimony, lost child support, and increased costs — they now have the children full-time. Life insurance, a wonderful product, is the perfect fit here. The lawyers and or financial advisors tend to do a very good job of being on top of all of this in negotiations BUT… almost nobody stays on top of it.

Make sure every year the premiums have been paid and that the beneficiary designation hasn’t been changed. Would an ex-spouse actually do that? 3) A family brings a baby into the world and procrastinates, doesn’t move quickly to get the proper life insurance in place. Incredibly common, please don’t do that.

This is a top priority. Get on it. In fact, I recommend setting up the insurance coverage once the decision has been made to have a child. In fact, I just pushed a young guy on this a few months ago. His wife was pregnant with twins. He was asking me an insurance question and I said, “Hey, your amount is well thought through, but get it NOW,

not when the kids are born. The need is already here.” He appreciated that and then said he liked my “shirt game,” you know, on the videos. What a fine young man.