What are some mistakes to avoid when deciding on the types of term life to purchase?
Below you will find a brief list to help you make that decision. Here are five mistakes people make.
Buying Too Little To Replace Income
Always buy ten to twelve times your income in life insurance coverage. That small policy you’re getting through work, which might be one year’s worth of coverage, isn’t near enough.
If you’re the primary source of income in your household, then your spouse and kids need to be taken care of if something should happen to you. Making sure you have plenty of coverage will allow them to live comfortably and maintain their lifestyle until they figure out the next step in their lives.
By investing the insurance proceeds, you can earn a rate of return that replaces your lost earnings and provide security. Just as important, don’t forget to get coverage for both spouses. Even stay-at-home parents need to have term life insurance.
Waiting Too Long To Obtain Coverage
If you wait too long to buy life insurance, you leave your family vulnerable if something unexpected happens to you. Term life insurance premiums generally increase as you get older, so buying sooner rather than later can save you money.
The older we get, the more at risk we are for health issues. That will increase the cost of your life insurance, or even make you ineligible to purchase it. Many people think they should wait until they are debt free to buy life insurance, but that’s when your family is the most vulnerable. As you reduce debt and increase savings, you slowly begin to reduce your need for life insurance as well.
Buying For Too Short Of A Term
You might be trying to save a few dollars by choosing shorter term coverage. But what happens if you buy a ten-year policy and you have medical issues ten years from now that raise the cost of your next plan, or worse, make it so you can’t get coverage at all? That will cost you even more in the long run.
So how long should you buy for? At RDS Financial Services will review your individual needs, and we will tailor a life insurance program that's right for you.
Buying Too Many Riders
Some people purchase policy riders that increase their premium, but offer very little value. Some of the more popular riders might include income replacement, waiver of premium, critical illness and accidental death. Most people will buy these because they have an emotional value attached to them, but they have very little actual benefit.
Failing To Occasionally Review Your Life Insurance Policy
It’s a good idea to review your life insurance policy to make sure that you have exactly what you need for your current situation. The coverage you purchased 10 years ago may have been exactly what you needed at the time, but that doesn’t mean it works for you now.
Make sure you have enough insurance to take care of your changing needs. Since then, perhaps you had a child, bought a new home, received a raise at work, quit smoking, or had other health improvements. These life-changing events can either help you save money or require that you purchase additional coverage.
Life insurance is a major part of a healthy financial plan. Don’t put off the purchase of life insurance, or you could find yourself in financial trouble in the days ahead.
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