There are a number of mistakes that can be made within a life insurance portfolio. Five of the most common mistakes involving personal and business life insurance, which can be easily avoided or corrected:
Mistake 1: It is forgotten that term insurance will terminate and/or become expensive to carry.
Short-term products should be used when the duration of the need is definitely short-term. Long-term products should be employed when the need is long-term or indefinite. A combination of the two may also be appropriate.
Mistake 2: All insurance is owned by the insured.
If the estate is likely to grow over time, the ownership of insurance in the insured’s name may lead to needless federal estate tax inclusion, which in turn usually results in unnecessary federal estate tax liability. A trust or responsible adult should purchase, own, and be recipient of the insurance.
Mistake 3: The wrong type of insurance is owned.
If the insured has purchased a short-term product that will or may run out when needed the most, have a discussion with your client to see if the right type of life insurance for present needs, circumstances, and objectives is in force.
Mistake 4: Policies have not been reviewed at least every two years.
An astounding number of policies are payable to an ex-spouse or another whom the insured would not have wanted to receive the proceeds. Perform a policy review with your clients at least every 2 years to ensure that the policies remain in force and the beneficiaries listed are correct.
Mistake 5: At least two contingent beneficiaries are not named.
If the named beneficiary dies before the insured and no change was made in the beneficiary designation, the proceeds will be paid to the insured’s estate. Name two backups for every person named in your life insurance policy as a beneficiary.