Buying Life Insurance: Smart Tips for Smart Purchasing

By Matt Mormino, CFP® | Nov 27, 2023 |

The right life insurance coverage can provide critical income replacement and support for your family if the unthinkable happens.

However, sorting through all the policy options to find the best fit can feel overwhelming. Instead, prepare yourself by knowing what you should look for and what you should avoid.

You can secure tailored coverage that protects your loved ones with the right approach.

Top 5 Tips for Buying Life Insurance  

1) Explore diverse coverage options

Shop policies through an independent insurance broker who can access options across multiple highly rated insurance companies. This increases the chances of finding the best product and pricing for your unique situation. 

2) Consider long-term financial objectives

When evaluating necessary coverage amounts, consider your current and future financial picture – not just current income or net worth. Factor in future earning potential, retirement savings goals, plans to fund college for kids, intentions to pay off your mortgage, etc. 

3) Plan for the life ahead

Ideally, purchase enough term life insurance to provide income replacement and financial support for dependents during the years when they would need assistance if they passed away prematurely. Allowing policies to expire as you build sufficient assets over time limits the cost of insurance.

4) Mix term policies for flexibility

Layer shorter 10- or 15-year term policies with longer 25- or 30-year terms to meet near-term family obligations while reducing overall costs long-term as the shorter policies expire once the needs have passed. 

5) Prioritize clear and practical policies

Only purchase life insurance policies whose purpose, benefits, costs, and value you thoroughly understand and make rational sense for your specific circumstances. Avoid over-complicated products or policies making unrealistic or exaggerated claims about their benefits.

Five Pitfalls to Avoid When Buying Life Insurance

1) Don’t misplace critical policy documents

Allowing your policy documents and details to get lost in a move or home organization clean-out makes for big challenges when needed, which is already stressful. Confirm your beneficiaries know where to locate policies and who exactly to contact if they have to make a claim. 

2) Don’t delay—move now

Avoid waiting weeks or months to complete the life insurance application and medical review process after initially deciding coverage is needed. Get any required tasks you control, like exams, done ASAP so coverage gets issued and in force quickly. 

3) Shun vague or convoluted policies

Insurance products with to-good-to-be-true vibes need additional research before accepting them at face value. An insurance policy isn’t a Rorschach test—what you think is in it isn’t necessarily what’s actually in it. Ask for clarification from the broker or agent and shop providers if needed. 

4) Don’t rely solely on employers

Depending 100% on group life insurance policies from an employer, that could disappear along with coverage if you change jobs later. Supplement group plans with individual policies when possible. 

5) Keep coverage intact

If you decide at any point to replace an existing policy, be sure to confirm the new coverage starts before canceling the old policy so there is no gap in coverage. Even a tiny gap in coverage, if it hits at the wrong time, can be devastating. 

How much life insurance coverage should you buy?

There is no “right” answer to this question. An excellent place to start is to tally up debts, like mortgages, car loans, etc., then estimate your projected income over the next 10-20 years, and finally, factor in any significant future expenses like funding college or doing a home remodel. Think about this total and what is discretionary; this will give you a good range of coverage to target. 

Get sample quotes for policy benefits at different increments like $250k, $500k, and $1 million to gauge how premiums scale. Use those quotes to find the sweet spot, balancing the coverage you’d want for family security with reasonable premiums you accommodate within your larger financial plan. 

It’s worth noting that blending group life insurance from an employer with individual policies can provide cost efficiencies and guaranteed coverage that is not tied to your job. 

Choosing the right life insurance policy type

For most individuals, a guaranteed level premium term life insurance policy offers an affordable way to cover income replacement for the needed period. 

Permanent life insurance policies can also make sense if you desire lifelong coverage or need liquidity at death for estate planning purposes. 

Consult an independent insurance broker who can illustrate options from highly-rated insurers to identify the appropriate product to meet your budget, needs, goals, risk tolerance, and circumstances. 

Be honest about your current situation and plans. Avoid policies that are too complex to understand easily. Carefully read the fine print and illustrations. Securing the right amount and type of life insurance coverage early can provide tremendous peace of mind knowing your loved ones are financially secure. 

Recruit a Personal CFO

Buying insurance policies can be an emotional experience, as it forces you to contemplate things that could go wrong in your life or business; it also brings your mortality back and center. A Personal CFO will not only be able to guide you through the process step-by-step, but they will also help you make informed decisions based on your needs and circumstances. 

If you’re looking for a Personal CFO who knows the insurance market and offers tailored advice to help you secure the brightest possible financial future, please get in touch with us. 

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