According to the experts at Statista, approximately 57% of Americans have life insurance. This is great news given that, until now, people chose not to buy life insurance out of emotional reasons. They’ve come to realize that life insurance holds value and it represents a smart investment. This financial product is meant to provide protection to surviving dependents following the death of the insured. Depending on the situation, the money can help pay off debt or help children pay for their college education. If other people rely on your salary, you must take out life insurance. So, ensure that the members of your family are well taken care of. Avoid these common mistakes when shopping for life insurance.
Postponing buying life insurance
Most individuals wait until they are older to purchase life insurance. Buying life insurance later on in life will not save you money. On the contrary, you will end up paying significantly more. The rule of thumb is this: the older you get, the higher the rate is. The premium amount increases about 10% for every year of age, so if you do the math, you’ll understand that you can face steep rates if you make the move when you are older. There is no better time than now to buy a life insurance policy for yourself.
Not only will you find insurance premiums cheaper but also, you’re likely to be approved right away owing to your health and lifestyle. It won’t be necessary to take additional tests like EKG or cognitive testing for dementia. Many factors come into play when it comes to determining life insurance premiums. Nevertheless, age is one of the most important considerations because the greater your age, the higher your risk of death is. The death of an applicant means that the insurance company has to pay out the death benefit earlier.
Looking exclusively at price
Only half of the people living in the United States hold a life insurance policy. What about the others? They don’t take out life insurance believing that it’s too expensive. Consumers overestimate the cost of life insurance. They think insurance costs more than it does. If you were to ask them what the price for a life insurance policy would be, they would no doubt tell you that it costs somewhere around $500, which isn’t true. This is more than the real cost. The point is that if you think getting life insurance is ridiculously expensive, you are mistaken.
Price is indeed an important aspect to consider, but it’s not the only one. Take into account the financial strengths of the product, in addition to its guaranteed features. You could be making a mistake if you sign a deal with a company that doesn’t cater to your particular needs in terms of health and personal activities. You’ll want to discuss with a knowledgeable agent who knows what works for your particular situation. As a rule, policies that are a little bit more expensive have additional benefits. Examples include but aren’t limited to:
- Building cash value
- Taking out loans against the policy
- Favorable tax treatment
Choose the right policy and cover. Don’t choose life insurance based on price alone. The price isn’t as important as the quality of service.
Selecting the wrong type of policy
You must find the life insurance policy that fits your unique needs. Determine if you want coverage for a specific amount of time or indefinite coverage. Make sure to understand the differences between the two before you make a decision. In what follows, we’ll discuss term and permanent life insurance.
Term life insurance
As the name clearly suggests, term life insurance ensures coverage for a limited amount of time at a fixed rate of payment. It’s the cheapest of the two options. The moment that the insurance policy expires, you can renew for another term and even convert it to permanent coverage. You can buy life insurance for 10, 20, or 30 years. Term life insurance can’t be used for estate planning or charitable purposes. If you’re on a tight budget, you may want to choose term life insurance because it’s cheaper when initially purchased.
Permanent life insurance
Permanent life insurance may necessitate higher monthly premiums, yet a death benefit is paid regardless of the moment when you die. It lasts for your entire life, not to mention that it includes a savings component that grows over the years. You’re able to borrow against the policy if enough cash value has accumulated. Permanent life insurance can be divided into the following subtypes: universal life, indexed universal life, no-lapse guaranteed universal life, variable universal life, and whole life.
Buying too much or too little
Generally speaking, consumers underestimate the amount of life insurance they need to acquire to protect their family and loved ones. Think about how much cash the survivors will need. A financial advisor can help you in this sense. You shouldn’t buy more than you need, but neither should you buy less than you need. If no one else depends on your income, then you don’t need much coverage to begin with. On the other hand, if you have a numerous family, be sure that they will need a lot.
Don’t pick a number out of thin air. You should have 10 times your income in life insurance benefits. If you’re not looking to replace your salary. This is what the experts at Forbes.com say. There are variations to this rule, but you get the point. The people you care about the most will be able to pay off debt once you’re gone, meaning that they can grieve without the financial stress. Attention needs to be paid to the fact that the 10 times income rule doesn’t take into account what your family needs and neither does it consider your savings. Right now, it’s a good rule. However, if the economy and interest rates change, it’ll no longer be valid.
To conclude, don’t rely on the life insurance at work. The coverage will end the moment that you leave the company. It’s best to purchase a life insurance policy that meets your needs – in other words, that offers enough money for burial expenses and other obligations.