3 Traps to Avoid When Shopping for Life Insurance – The Motley Fool
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Getting the right amount of coverage at the right time could make all the difference.
Key points
A life insurance policy can provide financial protection for loved ones.To get the right coverage, consumers can research coverage amounts and types.For many people, buying a policy when younger can mean paying a lower premium.
Buying life insurance can seem like a daunting process. First of all, consumers need to look into several insurance companies and compare offers to snag the best rates. But also, the mere idea of purchasing life insurance involves contemplating your own mortality. And let’s face it — that can be unsettling.
Still, many people find that buying life insurance is an important thing to do for their loved ones. That way, they’ll have some degree of financial protection in the event of the policyholder’s untimely passing.
But if you’re going to buy life insurance, it’s important to avoid some of the traps consumers commonly fall into. Here are three specific ones to steer clear of.
1. Getting upsold on a higher amount of coverage
The higher a death benefit an insurance policy provides for, the more expensive that policy is apt to be. So it’s a good idea for a consumer to strike a balance between getting their loved ones the financial protection they need without overspending.
To that end, there are a few formulas you can use to determine how much coverage you want. For example, someone could decide to go with a death benefit that will replace 10 times their salary, plus pay off their existing debts and cover funeral costs.
When shopping around for a policy, it’s a good idea for consumers to try not to get sold on too high a death benefit. For example, someone who currently earns $60,000 a year and has $150,000 in mortgage debt may find that a death benefit of $2 million is more than needed.
2. Choosing a whole life policy rather than term life
Whole life insurance can be appealing. With a whole life policy, the policyholder accumulates a cash value they can tap or borrow against. Plus, they get coverage for the rest of their life.
On the flipside, a term life policy only provides coverage for a specific term, or period of time. And if the policyholder doesn’t pass away within that time frame, the policy will end up being worth nothing once it expires.
But while whole life insurance might seem appealing, it can be prohibitively expensive. And the danger in buying it is that the policyholder might struggle to keep up with premiums down the line, to the point where they’re forced to let their coverage lapse. Depending on the timing of when that happens, they could be left with little to no cash value in their policy, resulting in a situation where they’ve effectively thrown their money away.
3. Waiting too long to get started
Health issues tend to arise as we age. Now, this doesn’t always happen, and some people manage to get into a healthier state in their 40s than during their 30s, for example.
But for the most part, the longer people wait to apply for life insurance, the more expensive their premiums are likely to be. So people who want to protect their loved ones may not want to put off the process. Instead, they can make it a priority at a younger age to lock in premiums they can afford over time.
Putting life insurance in place is one of the most financially savvy moves a consumer can make, as long as they avoid these pitfalls along the way.
Life Insurance Protection for You and Your Family
While many varieties of insurance coverage are designed to help protect a person’s family and assets, life insurance is a vital type of protection. The right life insurance can help protect the people that depend on you the most if you should pass away. Choosing the right life insurance policy is critical to ensure your loved ones are protected properly. We have sorted through the various options to provide you with our choices for the best life insurance policies available today.
