Know the Basics of Buying Life Insurance
How much life insurance coverage do you have? If none is your answer, you’re not alone. Many people put off buying life insurance, which is a big mistake. Learn the basics of life insurance to secure your family’s future.
The most generous employer-provided life insurance plans rarely provide more than five years’ salary, and many policies offer less. Would this leave your beneficiaries with enough cash to cover any outstanding mortgage debt, college tuitions and other expenses? The recommended minimum is either 10 years’ salary, or five years’ salary plus enough to cover your current debts and larger anticipated expenses.
Whole vs. Term Policies
Term life premiums are about one-quarter the cost of whole life premiums, but with whole life, you build cash value, which you could borrow against or cash out at a later date. In addition, most term life policies can be converted to whole life within a designated time period.
Length of Life Insurance
The cost of life insurance premiums generally double for every 10 years of age, with greater increases if your health declines even slightly. If you purchase a 10-year term life policy while you have 20 years left on your mortgage, or while your children are young, you can expect a hefty premium increase after the term expires. Your best bet is to lock in your current rate for as long as you know you’ll need it.
Having a child, incurring debt or paying off a mortgage early might require you to change your coverage. Let your agent know when such events occur to adjust your coverage accordingly.
For those with busy schedules or an aversion to the doctor’s office, products such as instant-issue and guaranteed-issue life insurance allow you to forego a medical exam. Policies such as these typically cost more, but under certain circumstances, they are a great option.
—Written by AAA Washington staff, last updated in January 2023.