Putting together a strong life insurance portfolio isn’t a simple task. The trick is to make sure you are purchasing enough insurance for your life needs without over-buying or making mistakes that will leave your loved ones in a difficult financial situation should you pass away. The following are some of the most common mistakes made when purchasing term life insurance.
Choosing a Random Number
Nothing about life insurance is random. In terms of a limit, many professionals recommend a base amount of approximately 10x your current income. Many employers offer coverage but it is usually only enough to cover one or two years of income. The amount of life insurance you purchase should help to support your spouse and any minor children you have. Additional considerations might be the cost of college and the cost of paying off your home mortgage, especially if your spouse does not work or does not earn enough income to cover household expenses.
Waiting Too Long
Most people wait too long, until they are older, to purchase term life insurance. Term life insurance premiums go up as you get older, especially if you begin to have health issues. Purchasing a policy early, while you’re healthy and have a specific purpose, is more advantageous than waiting.
Choosing the Wrong Term
Term life insurance is for just that, a specific term or period of time. For example, you and your spouse have just purchased a new home and it has a 30-year mortgage. You want to make sure your spouse does not lose the home if something happens to you. You’ll need to make sure the term of the policy exceeds or matches the term of your mortgage. Another great example is ensuring your family has enough money to live until your children finish college. In this instance, you’d need to consider the age of your youngest child and make sure the term of the policy exceeds the college age. If you have a 10-year old, you’ll want your policy term to be for at least 15 years.
Insuring Only One Spouse
Many families believe they only need term life insurance for the primary breadwinner without considering the financial implication of losing the other spouse. It doesn’t matter if your spouse only has a part-time job, or no job at all. The contribution your spouse makes to the household can and should be valued. What would you have to pay for cooking, cleaning, transportation, and childcare if your spouse was not around to handle those things while you are working?
Not Replacing Coverage
It is never advisable to have a lapse in coverage, even for a short period of time. If your current term policy is about to expire, start talking to your agent about your new needs at least 30-60 days before the old policy expires. That way your new policy can go into effect the day the old one expires and you will never be without protection.
Term life insurance serves a very specific need. Talk to your insurance professional about every aspect of your life and make sure you are making the best choices possible for your family’s future.