When you purchase a life insurance policy, you are making a bet that you will live longer than the policy term. In case you pass away during the policy term, the death benefit will go to your beneficiaries. If you live beyond the policy term, the death benefit is paid to you, and you keep the coverage as long as you continue to pay premiums.
While this may seem like a safe bet – after all, most people do live longer than their life insurance policy terms – there are some risks to consider before buying a policy. Bill Schantz will now take you through some of them.
Risks of Purchasing Life Insurance
Lapsing or Surrendering Your Policy
According to Bill Schantz, if you fail to pay your premiums, your policy will lapse, and you will no longer have coverage. If you decide to cancel your policy (surrender it), you will also lose any death benefit that you have paid into the policy.
In either case, if you later decide that you need life insurance, you will have to reapply and may be denied coverage or charged a higher premium due to your age or health status.
Policy Decreases in Value
While whole life insurance policies do have some cash value component, the primary purpose of life insurance is to provide a death benefit for your beneficiaries. This means that if you live beyond the policy term, the death benefit will decrease each year as you age.
This can be a problem if you need to rely on the death benefit for final expenses or to provide income for your family after you die.
You May Outlive Your Coverage
Bill Schantz believes that if you purchase a term life insurance policy, there is a chance that you will outlive your coverage. This means that if you still need life insurance when the policy expires, you will have to reapply for coverage and may be denied due to your age or health status.
Whole life insurance policies do not have this problem since they do not expire, but they can be more expensive than term life insurance policies.
Your Family May Not Need the Death Benefit
One of the biggest risks of buying life insurance is that your beneficiaries may never need the death benefit. If you have a spouse and young children, the death benefit can be vital to their financial security.
But if your children are grown and financially independent, and your spouse has a good income, they may not need the death benefit from your life insurance policy. In this case, you may be better off investing the money that you would have used to pay premiums into a retirement account or other investment.
Although Bill Schantz has highlighted a few risks of purchasing a life insurance policy, ultimately, it is up to you to decide if the benefits outweigh the risks.
If you have a family that would be financially devastated by your death, life insurance can give you peace of mind knowing that they will be taken care of. On the other hand, if your family is financially secure, you may not need life insurance and could invest the money elsewhere.