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You only really need to buy enough life insurance to cover the expenses you pay for that your loved ones rely on. That could mean mortgage payments, college tuition, auto loan payments, and medical bills, plus a financial cushion to protect your family. The more coverage you buy, the higher you’ll pay in premiums, so when figuring out how much life insurance you need, don’t factor in the cost of a new Lamborghini for your spouse.
But it’s also possible to buy too little coverage. If you purchase a more expensive policy, you may be paying too much for too little. You can avoid that by figuring out exactly how much coverage you need. Plan ahead. Although you can always update your life insurance policy to cover future life developments, like a new baby, if you purchase enough when you’re younger you may able to lock in a lower rate than that which you’d be quoted later in life.
Many people receive group life insurance through their employer. It seems like a great deal because employers often offer some coverage at no additional charge, and an even greater amount of coverage at a low cost.
But the coverage you’ll receive through an employer-sponsored life insurance policy is generally a lot lower than you can get from an individual plan, and it may not be enough to cover all your needs. A typical group life insurance policy clocks in at around $250,000 – a lot of money, sure, but barely enough to cover both mortgage payments and raising a child.
Simply put, it’s easier to qualify for life insurance when you’re younger and healthy, and you’ll save a bundle on premiums, too. The longer you wait, the more expensive life insurance becomes for the same amount of coverage. Although it may seem like you won’t need to worry about dying for a long time, you could save hundreds of dollars per year if you buy when you least need it.
Additionally, if later in life you develop a health condition that makes it more difficult to qualify life insurance, you may wish you’d bought life insurance when you were healthier.
The point of life insurance is to provide financial protection for your beneficiaries when you’re no longer around to help pay for big expenses. But when you experience changes in your life, you may want to update your beneficiaries. For one, if you get divorced, you may decide that you don’t want your ex-spouse to receive the death benefit, which could get awkward if you remarried and forgot to tell the life insurance company.
You may also want to update your beneficiaries to include a new child on your policy, especially if you’re a single parent, or want to add contingent beneficiaries in the event that your spouse dies before you do. Updating your beneficiaries is also a good idea if you started a new business and need to include your business partner.
Think you can get lower premiums by lying about your health and medical history on your life insurance application? Don’t try it. Lying on your life insurance application is the fastest way to lose your coverage if the insurance company finds out, which is much more likely to happen during the two-year contestability period that begins when the policy is in force. You may be given a chance to correct the misinformation, for which your premiums will be adjusted to account for the amount you should’ve been paying.
However, if the misrepresentation is discovered after you die, the life insurance company may cancel the policy without ever paying the death benefit, meaning that you paid for life insurance coverage all those decades and your beneficiaries will receive nothing. And, in death, you won’t be able to correct the record.
Image: Todor Tsvetkov
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