After careful research, you've made the decision to purchase term life insurance. Purchasing term life insurance is a wise decision that ensures your family is financially secure after your death. When buying your policy, make sure you don't make these common mistakes.
1. Purchasing Too Little Life Insurance
The proper amount of term life insurance varies greatly based on your circumstances. A general rule is to purchase enough life insurance to replace 10 to 12 years of your current income. If you make $50,000 a year, this means that your policy should pay out $500,000 to $600,000.
However, if you have children, you may want to increase this amount. Children come with a plethora of expenses, including college costs, tuition for private school, fees for extracurricular activities, and even the need for a larger home if space is minimal. Make sure your kids and spouse are taken care of by considering these expenses.
With the average cost for a year of college coming in at $24,061 for a public college and $47,831 for a private college, it makes sense to add an additional $100,000 to $200,000 just to make sure college is covered.
2. Selecting a Term that is Too Short
One of the benefits of term life insurance is that you pay the same premium for the duration of the term. If you purchase a 20 year term policy, your premiums stay the same for 20 years. At the end of the term, you have to renew the policy if you wish to keep it. Changing medical issues and an increase in age usually result in increases in the cost of the premium.
When selecting the length of your term, a good guideline is to pick a term that will last until your children are grown. If your child is a baby, a 20 year term is sufficient. In cases where you plan on having additional kids, pick a 30 year term.
3. Postponing the Purchase
Postponing the purchase of term life insurance is a costly mistake for multiple reasons, the first being that you could die in the meantime, leaving your family in a financial bind.
Another reason it is unwise to delay the purchase is that premiums will increase as you age or as your health changes. Purchasing the policy while you are young is the best way to lock in favorable premiums.
One of the smartest decisions you can make is the decision to purchase term life insurance. Doing so provides your family with financial security even after you are gone. Make the most of your purchase by avoiding these mistakes.