When most consumers
think about buying life insurance these days, they immediately think term
insurance is the best option. This is
not always the case.
life insurance, which covers you for a specified amount of time, such as 10, 20
or 30 years, is almost always cheaper, at least in the short-term, than other
forms of permanent insurance. The reason: Term insurance only pays out when you
die (that is if you die while the policy is in force), while permanent
insurance offers coverage for your entire life provided premiums are paid when
due and may also include a cash value component.
every important purchase, it's crucial that you understand just what you're
buying when you shop for term life insurance. Even an inexpensive policy, if
not designed to meet your particular financial needs, can result in money down
following are five of the most common mistakes consumers make when buying life
Selecting term insurance solely because it's cheap. Shopping for
life insurance by just comparing premiums is asking for trouble. You should
compare company ratings to determine financial strength and policy features,
such as convertibility options. While
the policy’s premium is certainly a factor, ensuring that your policy matches
your financial goals is more important.
Not understanding that term insurance is temporary. That's why it's
called "term" insurance -- because you buy it for a set period of
time, most commonly 20 years. This is fine for a temporary need, such as
insuring yourself until your mortgage is paid off or funding your children’s
college expenses in the event of your premature death.
20-year level-term insurance policy you bought when you were 30 would expire
when you're only 50. At that point, you still might need to carry insurance,
but your age and health conditions might make it impossible or very expensive
to do so. At least, if your policy has
a convertibility option you can get coverage, it just might be down right
Buying from a less-than-stable insurance company. Don’t be afraid to ask about an insurance
company’s ratings. You can also look for an insurer’s Standard & Poor's, Moody's or A.M. Best ratings on the Internet.
are many insurance carriers with high financial ratings (A+ or better) so you
shouldn’t have to buy insurance from a lower rated company. But, keep in mind that ratings can and will
change, so ratings alone shouldn’t be your only consideration.
Buying insurance coverage based on a set formula. It is a good rule of thumb is to buy life insurance coverage equal to 10
times your annual salary or 10 times your beneficiary's annual financial need.
this formula isn't a bad place to start, everyone has different needs, so don’t
assume that 10 times your salary is what you need to carry in life
insurance. The best advice here is to
sit down with a knowledgeable agent that will take the time to learn about your
5. Failing to
regularly review your policy.
Is your former spouse still the beneficiary of your life insurance policy? Did
you buy term insurance to cover you while you pay off your mortgage? If you
refinanced during the latest rate drop and restarted the clock on your loan,
you might also need to update your insurance term. Life definitely has a way of
throwing changes your way. Just make sure your life insurance changes along
Bottom line – don’t
forget to do your homework. Whatever
your life insurance needs may be, we can help you investigate the best options
for you to help protect your family’s financial future.