The 2 Important Factors in Choosing the Right Life Insurance
If you feel like you don’t quite grasp the concept of life insurance or understand how it works, you are not alone.
A recent LIMRA (Life Insurance Marketing and Research Association) survey found that 46% of Americans continue to put off their need for life insurance, possibly because they don't know enough about it.
When it comes to making a big decision, a lack of knowledge generally translates to a lack of confidence. This is exactly the case with life insurance, and it’s part of the reason why U.S. households with coverage dipped to 52% in 2021.Many people don’t know how to approach the process of choosing life insurance, and as a result, they avoid the topic altogether.
So, how can you cut through the uncertainty and secure the right life insurance policy for you and your family? We've simplified things by narrowing our focus to the two most important factors in choosing life insurance. Read on to learn more...
Here’s what we'll cover in this post:
Quick Article Guide
Here’s what we'll cover in this post:
1. Length of Policy: How Long Should Your Life Insurance Last?
It’s impossible to predict how long you’re going to live, which is why you need to pay close attention to term length when comparing different policies.
There is a clear element of financial strategy that goes into choosing life insurance, the key being to ensure that the duration of your policy aligns with the coverage your spouse or family would need in the event of your passing.
Savings Tip - You Might Also consider layering your policy term lengths. For example, instead of buying a 30-year term for $1,000,000 of coverage, you might buy 2 policies: a 15-year term for $500,000 and a 30-year term for $500,000.
We've created a term life insurance laddering calculator to help you determine your potential savings if you are considering utilizing this strategy.
For more savings tips, see our article: Affordable Life Insurance - The 10 Most Overlooked Secrets
For example, if you have a mortgage, you don’t want to risk leaving that financial burden in the hands of your children. Therefore, you should seek a term that extends beyond your estimated timeframe for paying off the mortgage.
Likewise, someone looking to leave behind an estate and protect their family from the associated taxes would want a term that extends through their 90s; this guarantees that whoever inherits the estate has sufficient income to retain it.
Life insurance can be guaranteed for 10, 15, 20, 25, or 30 years, or up until you’re 121 years old. The problem is that many life insurance policies adjust your rate every five years.
To make matters worse, these policies tend to be the ones that attract the people who need reliable life insurance most. Especially past the age 60 and up.
Consumers are lured in by low rates, not realizing that their premium will likely double a few years later. Many clients come to us in distress because they have lost, or are in danger of losing, coverage after failing to account for this type of rate hike.
There’s a common misconception that term life insurance is rigid. Since term policies cover a set amount of time, many people assume that their coverage will automatically expire and they’ll be back at square one after their 10, 20, or 30-year term is up.
That’s not the case at all. Your term can be adjusted to fit your evolving needs, and you can just as easily extend coverage through age 121.
You’re also allowed to “layer” or “stagger” two or more policies of varying term lengths to align with different needs. Term life insurance is by no means a set-in-stone commitment to a certain period of time.
2. Amount of Coverage: How Much Life Insurance Do You Need?
If there’s a bigger mistake than being uninsured, it’s being underinsured. Too often, consumers leap into a policy they see on a TV commercial unaware of the pitfalls that come with these inexpensive, easy-approval plans.
So you pay a dirt-cheap monthly premium for $50,000 worth of coverage...is that $50,000 really going to provide your family with adequate long-term support? Visit our Life Insurance Needs Calculator
The amount of coverage you need is directly related to your financial standing and goals. You should take into consideration any mortgages and major debts, as well as the amount of annual income your family would lose if you were to die.
If you’re a sole breadwinner, that third component becomes especially important considering you will want to ensure that your spouse or significant other would have enough money to maintain their current lifestyle without suffering financially - at least until they’re able to downsize if needed.
Now you’ve got a running total that includes your mortgage, debt and income. Next you’ll want to consider any unforeseen costs, such as medical and funeral expenses, before chipping away at the total with your investments, savings and any other insurance policies.
Once you reach a ballpark figure, it will be easier for you to evaluate the options. And, don’t worry about overestimating; if your need for coverage decreases in the future, it’s often possible to adjust your policy accordingly. In the meantime, you should insure any and all debts or loans for the maximum amount of time it will take to pay them off.
See our Interview on AIS: Insurance Trends and How to Select the Right Insurance Policy
Avoiding Common Mistakes when Purchasing Life Insurance
We have already discussed several common mistakes and misconceptions in this article, but here are a few more to be aware of:
Don’t Buy the Shortest Term
It can be tempting to buy the shortest-term policy available to minimize the cost. Your health and finances could change drastically over the course of 10 years, so it’s best to spend a little more to secure your coverage for a longer period of time. Let's face it, you likely won’t have to deal with buying coverage again.
Mortgage Insurance Is Not Term Life Insurance
If you buy insurance through a bank, understand the difference between mortgage insurance and term life insurance. Mortgage insurance only protects your mortgage, not your family; and your lender is generally the beneficiary.
This means that your family will be responsible for all other expenses, including medical bills and other debts that you may leave behind. We recommend purchasing term insurance for the length of your mortgage or replacing your mortgage insurance with a more substantial policy.
Know What You’re Covered For
Going back to the general lack of public knowledge surrounding life insurance, it’s all too easy to buy into a policy without fully understanding the level of (or lack of) protection you’re getting.
For example, many life insurance policies only cover an accidental death, but not one that’s health-related. Others have a two-year waiting period before a health-related death is covered.
Don’t Buy the First Policy You See
What if you could turn a 5-year policy that only covers accidental death into one that covers both accidental and health-related death, lasts for 30 years and adds $250,000 of protection for $10 more per month?
This type of jump is not far-fetched at all, but you’ll miss it if you buy the first policy you see. In other words, shop to compare coverage, not just rates.
Work with a Reliable Agent
You need an independent agent you can trust — someone who listens and is committed to helping you find the absolute best life insurance policy tailored to your needs.
At JRC, we shop more than five times as many insurance carriers as big-box agents, allowing us to uncover better plans that come with more flexibility and higher savings. In addition, we only work with top-rated companies that have earned an "A" or "A+" rating from AM Best.
Contact us today to learn more, or give us a call toll-free at 855-247-9555. You can also click on the map below to instantly compare rates from more than 50 life insurance providers.
Managing Partner and Co-founder
Cliff is a licensed life insurance agent and one of the owners of JRC Insurance Group. He has helped thousands of families of businesses with their life insurance needs since 2012 and specializes with applicants who are less than perfect health. In his spare time he enjoys spending time with family, traveling, and the great outdoors.
Ask Our Experts
Leave your question below and one of our insurance agents will give you a detailed answer.