Common Mistakes People Make When Buying Life Insurance
Common life insurance mistakes can cost families thousands of dollars—yet most are easy to prevent with the right plan. Life insurance is one of the most valuable financial tools for protecting loved ones, but it’s also widely misunderstood. People often overpay, pick the wrong policy type, or leave their families underinsured. The good news: with clear guidance and a simple checklist, you can avoid these pitfalls.
Top Mistakes We See—With Quick Fixes
- Waiting too long to apply. Rates rise with age and new health conditions. Fix: Apply now to lock in lower premiums and more carrier options. If health is a concern, see our guide on life insurance with leukemia for how underwriters evaluate risks.
- Relying only on employer group coverage. It’s usually not portable and rarely enough for long-term needs. Fix: Layer an individual policy you own and control.
- Underestimating coverage amount. Funerals aren’t the only cost; families need income replacement, debt payoff, and college funding. Fix: Start with a simple target such as 10–15× annual income, then refine with a needs analysis.
- Choosing the wrong policy type. Some buy permanent when term would suffice; others buy term when they actually need lifelong coverage. Fix: Match the policy to the goal (see quick comparison below) and your time horizon.
- Letting beneficiaries go stale. Outdated designations can send benefits to the wrong place. Fix: Review beneficiaries annually and after marriage, divorce, births, or moves.
- Ignoring conversion options. Many term policies can convert to permanent without new medical underwriting—but only within a window. Fix: Know your conversion deadlines and eligible products.
- “Set it and forget it.” Income, debt, and goals change. Fix: Recheck coverage every 12–24 months so the plan stays aligned.
How Much Coverage Do You Need?
A quick starting point is 10–15× household income, then adjust for debts, children’s education, and any existing savings. If you have a mortgage or business obligations, add those explicitly. We’ll help you right-size the benefit so you’re covered without overpaying.
Term vs. Permanent: A Simple Comparison
| Feature | Term Life | Permanent Life |
|---|---|---|
| Best for | Budget-friendly income protection for a set period (e.g., raise kids, pay off mortgage). | Lifelong needs (estate planning, special-needs, business succession) and potential cash value. |
| Premiums | Lowest for larger death benefits. | Higher, but level for life if designed that way. |
| Duration | 10–40 years; expires at term end. | Lifetime coverage if premiums are maintained. |
| Conversion | Often convertible to permanent without new medical exam (within a window). | Not applicable. |
Why Work With Diversified Insurance Brokers
At Diversified Insurance Brokers, we help families avoid these mistakes. With access to 75+ top-rated carriers, we compare policies side-by-side, explain the trade-offs in plain English, and tailor coverage to your specific goals and budget—so there are no surprises, no overpriced policies, and no gaps that leave your family exposed. Explore our full approach on our Life Insurance services page.
👉 Want to learn more about our fiduciary process? Visit our About Us page.
FAQs: Common Life Insurance Mistakes
What is the biggest mistake people make with life insurance?
One of the biggest mistakes is waiting too long to buy coverage. Premiums increase with age and health changes, so delaying often means paying more for the same benefit—or not qualifying at all later.
How do people underestimate their life insurance needs?
Many people only buy enough coverage to pay off a mortgage or final expenses and forget about income replacement, education costs, and long-term living expenses for their family. A simple rule is to consider multiple years of income, not just debts.
Is relying only on employer life insurance a mistake?
Yes, relying solely on group life insurance can be risky. Coverage may end when you change jobs or retire, and the death benefit is often too small to fully protect your family. A personal policy keeps you covered regardless of employment.
Why is naming the wrong beneficiary a problem?
Outdated or poorly structured beneficiary designations can cause delays, conflicts, or money going to the wrong person. It’s important to review beneficiaries after life events like marriage, divorce, or the birth of a child and avoid naming minors directly.
What happens if I never review my policy?
Failing to review your policy can lead to coverage that no longer fits your financial situation. Over time, income, debts, and goals change. A periodic review helps you adjust coverage amounts, riders, and beneficiaries so your plan stays on track.
Is choosing the cheapest policy always a mistake?
Focusing only on the lowest premium can backfire. A rock-bottom price may come with limited features, shorter terms, or a company you are not comfortable with. It’s better to balance cost with financial strength, flexibility, and the right policy type.
Can I outlive my term life insurance and be left with nothing?
Yes, term coverage is designed for a set period. A common mistake is choosing a term that ends before key obligations, like a mortgage payoff or retirement. It’s important to select a term length that matches your long-term plans and consider conversion options.
Why is it risky to hide health information on the application?
Leaving out or misrepresenting health details can cause a claim to be denied later. Being honest with the insurer helps avoid problems, even if it means slightly higher premiums or additional underwriting.
Do people make mistakes by canceling policies too soon?
Canceling a policy without a replacement in force can leave your family unprotected. It’s especially risky if your health has changed, because qualifying for new coverage may be harder or more expensive than keeping your existing policy.
How often should I review my life insurance plan?
Many advisors suggest reviewing coverage every one to three years, or after major life events such as marriage, a new child, business changes, or retirement. Regular reviews help you avoid the most common mistakes and keep your plan aligned with your goals.
About the Author:
Jason Stolz, CLTC, CRPC, is a senior insurance and retirement professional with more than two decades of real-world experience helping individuals, families, and business owners protect their income, assets, and long-term financial stability. As a long-time partner of the nationally licensed independent agency Diversified Insurance Brokers, Jason provides trusted guidance across multiple specialties—including fixed and indexed annuities, long-term care planning, personal and business disability insurance, life insurance solutions, and short-term health coverage. Diversified Insurance Brokers maintains active contracts with over 100 highly rated insurance carriers, ensuring clients have access to a broad and competitive marketplace.
His practical, education-first approach has earned recognition in publications such as VoyageATL, highlighting his commitment to financial clarity and client-focused planning. Drawing on deep product knowledge and years of hands-on field experience, Jason helps clients evaluate carriers, compare strategies, and build retirement and protection plans that are both secure and cost-efficient.
