Purchasing a life insurance policy is one of the most important financial decisions in life. Good life insurance policy can be the key barrier between your family and serious financial troubles. An experienced and reliable broker or financial adviser can help you avoid most of the possible mistakes. As financial literacy is important for survival in these times, I have prepared a brief list of the most notorious mistakes, you should be aware of.

1. Understand the difference. Life insurance policies are of two basic types: Term life insurance and Permanent life insurance. While term policies cover you for a given period of time (most usually 10 to 20 years), permanent policies provide coverage for your whole lifetime. However, not all permanent policies are equal. The most common of these are Universal, Whole and Term 100 policies. Whole and Universal life differ in the investment component, which is built in (Whole life), or separate (Universal life). These can have more variations, while term 100 is typical for a whole-life fixed premium and no cash values. Becoming a bit confusing now, isn’t it?

2. Choose your agent or broker carefully. Captive agents (working with only one insurer) have limited options to cover all combinations of possible needs. Agents and brokers are paid by commission from your insurance and that may tend some of them to focus on the most lucrative policy, instead of the most suitable. Search for experienced brokers with good reputation and many satisfied clients.

3. Do not forget about medical tests. When applying for a standard life insurance policy, you are subject to medical tests. Some health conditions may disqualify you from obtaining the policy. Tell your broker about your medical conditions, he can find you the most appropriate policy and you will avoid declining. If your health condition is more serious, try to search for a no medical insurance specialist. However, be aware that no medical is more expensive, so try to search for a normal policy first. Medical science is advancing every day and insurers take it into consideration. Do not conceal any conditions – if discovered later during incontestability period (lasting usually for two years), they may cost you a lot of money.

4. Carefully consider other kinds of insurance. Disability or long term care insurance can make sense, especially in higher age. However, do not be caught easily by every offer, some kinds of insurance have questionable effect. For example, accidental death insurance sounds good, but in reality, the number of deaths due to accidents is extremely low.

5. Low price is not everything. Insurance should fit your needs well – how much will you need? For how long? What kinds? Do you want to use your insurance as an investment tool, too? Answers to these questions are vital!

Lorne Marr is a financial adviser and Life Insurance Canada expert with 17 year long record of success and satisfied clients.