If you follow Dave Ramsey’s advice, you probably know that Dave Ramsey only recommends term life insurance – but have you thought through how much you’ll need or how long of a term to purchase? What about all those riders . . . are they necessary? Here are some common mistakes to avoid so that you can get the best coverage at the best value for your family.
Failing to purchase enough coverage.
First, and foremost, life insurance only serves its purpose when you have the right amount of coverage. That’s why Dave recommends having coverage equal to 10-12 times your income. This may seem like a lot of money, but you never know when or how tragedy may strike. Following this rule of thumb will help to ensure your family would be taken care for all of their financial needs, no matter what comes your way. Be sure both spouses in your family are covered, too. Even stay-at-home parents need life insurance.
Waiting too long to purchase life insurance.
Not only could this put your family at serious risk if something were to happen to you, but purchasing term life insurance earlier in your life can save you money in the long run, as rates typically increase with age. Health issues that may arise later in life could increase your premium significantly, and may even make you ineligible to purchase life insurance all together. Some people wait because they think they should put off purchasing life insurance until they’re debt free. This is a common misconception because, when you’re in debt, your family is most vulnerable. In fact, Dave Ramsey says that life insurance is an immediate need – even before the Baby Steps! As you reduce debt and increase savings, you slowly begin to reduce your need for life insurance, but it is necessary to have while you work to reach those goals.
Choosing too short of a term.
Purchasing a shorter and less expensive policy may sound appealing, but it could hurt you in the long run. For example, if you buy a ten-year policy and, in ten years, you develop medical issues – that could raise the cost of your next plan. That’s why Dave typically recommends a 15-20 year term policy. For a family planning on having children in the future, a 30-year plan would make the most sense, whereas a family with small children that doesn’t expect to have any more, a 20-year plan would likely meet their needs.
Purchasing too many riders.
Most riders are low on value and high on cost, benefitting no one except the insurance company and agent, who receive extra commissions. Common term life insurance riders include income replacement, waiver of premium, critical illness, and accidental death. They’re marketed to consumers based on emotional value, but they are just a bad deal – a big profit-maker for the insurance company with little value to the policyholder.
Waiting too long to review your policy.
Dave recommends reviewing your term life policy every couple of years to ensure it still meets your current needs. The policy you purchased ten years ago may have been great for you then, but likely doesn’t reflect where you are in your life today. Life events like having a baby, getting a raise at work, or quitting smoking would be great reasons to look over your policy again.
Life insurance is an essential piece of your financial planning. Zander Insurance Guides are trained to help you avoid these common life insurance mistakes to get you the right coverage to protect your family. Get your free, instant quote or call 800-356-4282 to speak to a Zander Guide.