5 Common Life Insurance Mistakes and How to Avoid Them

Thinking about life insurance can feel uncomfortable and overwhelming. It’s one of those important things that’s easy to push off until “later.” Unfortunately, that delay is one of the main reasons families end up without the protection they truly need.

The good news? Getting life insurance right doesn’t require you to be a financial expert. In most cases, it simply means avoiding a few very common mistakes. Once you know what they are, you can move forward with confidence and choose coverage that actually protects your family.

Here are the five biggest life insurance mistakes — and how to avoid them.

Mistake #1: Choosing the Wrong Type of Policy

One of the first decisions people face is choosing between term life and permanent life insurance, and this is where confusion often starts.

An easy way to understand the difference is to think of it like renting vs. owning a home.

Term life insurance is like renting.
You buy coverage for a specific period of time, usually 10, 20, or 30 years. If you pass away during that term, your family receives the payout. If the term ends and you’re still living, the coverage ends. Term life is simple and usually the most affordable option, making it ideal for protecting income, mortgages, and young families.

Permanent life insurance is like owning.
It lasts your entire life and includes a savings component called cash value. It costs more, but some people use it for lifelong protection or estate planning.

For most families, especially those focused on income replacement and debt protection, term life insurance is usually the best and most cost-effective choice. Picking the wrong type of policy can mean paying far more than necessary or not having enough protection when it matters most.

Mistake #2: Underestimating How Much Coverage You Need

Many people choose a number that “feels” big enough, like $100,000 or $250,000, without doing the math. Unfortunately, this often leaves families underinsured.

Life insurance isn’t just meant to cover funeral expenses. It’s designed to replace income and protect your family’s lifestyle if you’re no longer there.

A good starting point is to aim for 10 to 12 times your annual income.
If you earn $70,000 per year, that means looking at $700,000 to $840,000 in coverage.

Next, add major debts on top of that, especially your mortgage. If your family could stay in the home without worrying about payments, that alone can dramatically reduce financial stress during an already difficult time.

Choosing too little coverage can force your loved ones to sell the home, dip into savings, or struggle to cover basic expenses. Getting the number right gives your family real breathing room.

Mistake #3: Naming the Wrong Beneficiaries (or Forgetting a Backup)

Even with the right policy and the right amount, everything depends on one critical detail: who receives the money.

Most people name a spouse or partner and move on. But what if something happens to both of you at the same time? Without a backup, the payout could be delayed in court instead of going directly to your family.

That’s why every policy should include:

• Primary beneficiary – first in line to receive the money
• Contingent beneficiary – backup if the primary cannot receive it

Another major mistake is naming minor children directly as beneficiaries. Children cannot legally receive large sums of money, so a court would appoint someone to manage the funds. That process can be slow, expensive, and completely out of your control.

A better option is naming a trusted adult or setting up a trust to manage the funds for your children’s benefit.

Also, beneficiaries should be reviewed after major life events like marriage, divorce, or having children. An outdated beneficiary form can send money to the wrong person — even an ex-spouse.

Mistake #4: Being Less Than Honest on the Application

It can be tempting to leave out health conditions or risky hobbies in hopes of getting a lower price. This is one of the most dangerous mistakes you can make.

Life insurance policies include a contestability period, usually the first two years. If you pass away during that time, the insurance company can review your application in detail.

If they find serious misrepresentation, they can deny the claim, even if the death was unrelated to the missing information. Instead of receiving the payout, your family may only get back the premiums you paid.

A cheaper policy that doesn’t pay out is worthless. Being honest protects your family and ensures the coverage actually works when it’s needed.

Mistake #5: Buying a Policy and Never Reviewing It

Life changes — and your life insurance should change with it.

A policy that worked when you were single might be completely inadequate after:

• Getting married
• Buying a home
• Having children
• Taking on new debt

If you never review your policy, you may think your family is protected when they’re not.

It’s smart to review your coverage every few years or after major life events. Sometimes all that’s needed is an increase in coverage or extending the term.

Another serious issue is letting a policy lapse because of missed payments. Once a policy lapses, there is no payout if something happens, no matter how long you paid into it.

Staying aware of your coverage keeps your protection aligned with your real life, not your past situation.

A Simple Checklist to Get Life Insurance Right

Avoiding these mistakes doesn’t require complicated planning. Just follow these basic steps:

1. Choose the right type — Term for most families, permanent for specific long-term goals
2. Calculate your coverage — Start with 10x income plus major debts
3. Name beneficiaries carefully — Always include backups
4. Be fully honest on your application — Protect your family’s payout
5. Review your policy over time — Keep coverage in sync with your life

Life insurance doesn’t have to be confusing or stressful. With a little guidance and the right approach, it becomes one of the most powerful tools you can use to protect the people who matter most.

Your family deserves more than good intentions — they deserve real financial security.