Mistakes to Avoid When Buying Term Life Insurance
Are you a fan of Dave Ramsey? If you are, then you likely know he’s not a fan of cash value life insurance. To be more explicit, he hates cash value and does not recommend it. Instead, Dave Ramsey endorses term life insurance over whole life insurance. But don’t just go out and by a term policy on his recommendation alone! You need to make sure you buy the right policy that fits your needs. Not only that, you need to avoid the most common mistakes people make when buying term life insurance.
Mistake #1: Not Buying Enough Insurance to Replace Income
If you are getting life insurance through your workplace, it might not be enough. It might only be one year’s worth of coverage, and you need at least ten to twelve times your income in life insurance.
Plus, if your’re the breadwinner in your family, then you need to plan for your spouse and kids for when you’re not there to take care of them financially. The best way to take care of your family after you die is life insurance. You need to make sure to have plenty of coverage so that they can live comfortably without your paycheck. However, the breadwinner shouldn’t be the only one with life insurance; even a stay-at-home parent needs life insurance. Put simply, both spouses need life insurance.
With the insurance proceeds, you can invest and earn a rate of return that replaces your lost income and provide security.
Mistake #2: Waiting Too Long to Buy a Policy
The longer you wait to buy term life insurance the more consequences you face. If you wait until the lasts minute, then you could leave your family financially vulnerable if something were to happen to you. Instead of waiting, you should act now so that you can benefit from having lower premiums. Generally, premiums increase as you get older because you’re more at risk for health issues.
A common misconception is that people think they should wait to buy term life insurance until they are debt free. However, that is when your family is at their most vulnerable because when you’re debt free you begin to think that you don’t need life insurance. Everyone needs life insurance.
Mistake #3: Not Getting a Long Enough Term
People commonly try to save money by buying a shorter term. However, what if you end up having medical issues after your ten-year term is over? Your medical issues will raise the cost of your next policy, or worse, it could prevent you from getting any coverage at all.
This is why Dave Ramsey, along with other financial advisers, suggest a 30 to 20-year term. Ideally, you should choose your term based on when your kids will be leaving for college and living on their own. For instance, if you are planning to have children in the future, then consider purchasing a 30-year term. Moreover, if you have just had a baby and don’t expect to have any more children, then a 20-year term makes more sense for you.
Mistake #4: Adding Too Many Policy Riders
Instead of offering value to you, adding several riders to your policy only increases your premium and pays extra commission to your agent. People tend to buy riders, such as income replacement, waiver of premium, critical illness, and accidental death, because these riders play on the buyer’s emotions. In actuality, they offer little benefit.
Mistake #5: Not Reviewing Your Policy
No matter what type of life insurance policy you purchase you need to review your policy regularly to make sure that your policy continues to match your needs. For example, if you’ve bought a home, had a baby, received a raise at wok, improved your health, or had a divorce, then you need to review your policy. Any type of life-changing event warrants a policy review because you might be able to save money, or you may need additional coverage.