Life insurance can be compared to having fun in one way: The older that you get, the more expensive it becomes.
A life insurance policy is an equation that is developed by an actuary or underwriting algorithm.
In the application stage, this equation assesses your current health, potential lifespan, and financial risk for the life insurance company that approves coverage.
The U.S. life insurance industry was worth more than $151 billion in 2019. That estimate is the value equivalent of over 280 million life insurance policies processed that year.
The takeaway point here is that a life insurance company, like a casino, is always going to win financially. It’s up to you to make sure that the policy you apply for exactingly covers your policy needs.
Don’t make these four mistakes when buying life insurance.
Waiting too long to purchase coverage
The average life insurance premium is $44 monthly or $528 annually. However, it must be noted that life insurance is cheaper the younger you are.
Life insurance companies assume young applicants are healthier and less likely to develop medical problems relative to older or elderly applicants.
A healthy applicant in their 30s might pay $16 monthly while an applicant in their 50s might pay $47.
The longer that you wait to apply for life insurance, the more you are going to pay. Of course you will pay longer if you start sooner, but if you buy a term policy you can keep your low rates for longer, too.
Term life vs. whole life
There is no one-size-fits-all life insurance policy. The cheapest kind of life insurance is term life.
Term life is a policy that stays viable for a finite period, like a decade or 30 years.
Whole life insurance lasts a lifetime but is more expensive than term life.
With whole life, a part of your premium is invested and builds cash value you can borrow against in retirement. Whether the return you get from a whole life policy is better than investing on your own is debatable.
The average term life insurance policy is $16 monthly for an applicant in their 30s and $122 for a whole life policy.
If you don’t make the right life considerations relative to your coverage needs, you could outlive your life insurance policy exactly when you need it the most.
Getting another life insurance policy could be prohibitively expensive once you are older.
Relying too much on group life insurance
Most people get their life insurance coverage through employer-sponsored policies.
When you have a group life, or an employer-sponsored life insurance plan, your employer pays all, half or a portion of your life insurance coverage through a dedicated fund or payroll subtraction.
All you must do to get this coverage is get a job that offers it.
However, group life insurance policies have exacting conditions — everyone in your family may not be covered. The coverage may be minimal, equal to burial costs noly. Also, if you lose your job then you lose instantly lose all of your coverage.
Apply for a supplemental coverage plan, even if you have a group life policy, to get the amount of insurance you actually need.
Failing to compare plans
The greatest mistake you can make when applying for life insurance is not to compare plans.
Compare as many plans as possible, talk to representatives and assess which policies match your coverage needs as closely as possible before signing on the dotted line.