Five Life-Insurance Mistakes that could Cost You Dearly

 It is our dream that the long hours we spent working would translate into our first home. Our goals are to be able to raise a happy family, pay for our children's college education and be financially independent during our retirement years.

Unfortunately, it is all too easy to stumble on the way to getting there. I have compiled a short list of the most common errors people make when they consider buying life insurance. All five of these errors are potentially costly.

First and foremost, whether it's starting a diet next month or postponing a much-overdue trip to the dentist, we tend to practise the art of procrastination at some point in our lives. In most instances, the side effects of our actions are minimal, and we are able to live with the consequences.

Unfortunately, when the subject turns to the need for life insurance and other financially related products, the ability to make an informed and timely decision can be critical.

Unlike diet programmes, delaying the purchase of life insurance to a perceived "better time" can be a costly mistake for you and the people closest to you. Waiting only a few years can have a sizeable negative impact in several key areas of a life insurance policy.

In its simplest form, life insurance is a tool that protects the people who count on you for financial support - no matter what happens to you. Aside from providing money to your beneficiaries to replace your income, life insurance also offers guaranteed cash-value accumulation.

If available, cash value can be borrowed to fund a child's education, supplement your retirement income or meet an emergency cash need. Loans reduce the policy's death benefit and cash value and accrue interest until repaid.

Life insurance accumulates cash value on a tax-free basis for as long as the policy remains in force. A portion of the premiums you pay for insurance coverage builds cash value each year, which can be accessed via loans at low guaranteed rates. Over the long term, the cash-value accumulation can be considerable, especially since life-insurance gains are tax-free. Generally speaking, the sooner you start paying policy premiums, the faster your cash value will accumulate, and the more money you will have in the future.

Many also put off buying life insurance until after marriage. If you are like many single men and women, there is a good chance you don't feel an urgent need for life insurance coverage. After all, there is no spouse to protect in the event of your premature death, and your financial responsibilities are fairly minimal. Simply put, there are probably better ways you can think of to spend your money.

Being single, however, is not necessarily the same as being alone. Your death could have a financial impact on other family members.

If you are a young adult, you may be paying back your student loans and other debts. If anything should happen to you, who would pay those bills?

If you have only a few assets, creditors may write off your obligation as uncollectable. In many instances, however, education loans are taken out in the names of other family members, usually with a parent as a co-signer.

A co-signer must pay 100 per cent of a debt if the other signer is unable to pay for any reason. Life insurance can shelter your family from the repayment of educational loans in the event of death.

Life insurance proceeds can also be used to help meet any final expenses.

Part Two will appear next Friday.