Top 10 Rules for Purchasing Life Insurance

When buying life insurance, there’s a few simple rules of thumb you can implement to help ease the confusion and reduce the probability of purchasing incorrect coverage.  We’ve compiled the top ten rules of life insurance for you, and here they are:

1. Make sure you have enough coverage.  This is the #1 rule of life insurance for a reason.  No matter what else you do, make sure your coverage amount is high enough.  If you have to cut corners to meet a budget, cut everything else before you cut the coverage amount.  Cut benefits, go to a shorter term, shop for cheaper rates with a broker -anything but reducing your face amount.
2. Don’t mix insurance and investments.  Buy insurance for one reason only – if you pass away, you need a lump sum of capital.
3. Corollary to rule #2.  When referencing life insurance, anytime you use the word ‘investments’ it must be preceded with the word ‘crappy’.
4. Exception to rule #2.  You can ignore rule #2 in one situation – if you start with the premise that you and your family have all the money they’ll ever need and you still have another $100,000 per year that you are looking to do something with. In that case there may be some tax advantages available using tax deferrals, leveraging and loans.  Otherwise, see rule #2.
5.  Fully disclose during your medical exam.  Honesty is important.  So is full disclosure, even insignificant or unrelated details.
6. Price matters.  Make sure you shop around for price.
7. Company size doesn’t matter.  For the most part you can ignore size and company ratings.  All life insurance companies are well regulated and monitored by the government – big and small.
8. If you want insurance forever, purchase permanent life insurance.  If you don’t need the insurance forever, purchase term life insurance.
9. Purchase guarantees.  Make sure that your premiums and your coverage are both fully guaranteed.  If something’s not guaranteed, then your guarantee is simply that it will be changed in the future to something that’s detrimental to you.
10. Take your medical exam first thing in the morning before you have anything to eat or drink.  That gives you better results.

Of course it can be more complex than I’ve just described, however these general rules of thumb are easily applied to most life insurance purchases.  Deviate from them at your peril!