A couple in Weston with two children and a new mortgage sits down to buy life insurance and gets three very different answers. A website suggests a round number. A coworker says the coverage through work is enough. A relative recommends a policy that builds cash value. Each answer sounds reasonable, and none of them started with the question that actually decides the right policy: what would this family need if one income stopped tomorrow?
Choosing life insurance is less about picking a product than about working through a few decisions in the right order. How much coverage, for how long, and in what form follow from the family’s obligations, not the other way around.
Start with what the money has to do
The amount of coverage should come from the family’s real numbers. Most families start with the mortgage balance, years of income the household would need to replace, debts that would fall to the survivor, and goals that still need funding, such as college for the children. Savings, existing coverage and a surviving spouse’s income reduce the total. A family that does this arithmetic usually lands on a figure far larger than the coverage they have through work and far more specific than a rule of thumb.
The other half of the question is time. A family whose largest obligations end when the mortgage is paid and the youngest child finishes school has a need that lasts twenty or twenty-five years. A family that wants to leave an inheritance, fund a trust or pay estate costs has a need that lasts a lifetime.
Term or permanent
Term life insurance covers a set period, typically ten to thirty years, and pays only if the insured dies during it. It is the least expensive way to buy a large amount of coverage, which is why most young families start there. Many term policies can be converted to permanent coverage later without a new medical exam, a feature worth checking before buying.
Permanent life insurance, such as whole life or universal life, is designed to last for life and builds cash value. It costs considerably more for the same death benefit, and it makes the most sense when the need is permanent: estate planning, a special needs child, business succession or leaving a guaranteed amount to heirs. Many families combine the two, with term covering the years of heavy obligations and a smaller permanent policy covering what will always be needed.
Employer coverage is a start, not a plan
Group life insurance through work is valuable, often inexpensive and sometimes free. It is also usually limited to one or two times salary, and it typically ends or becomes expensive when the job ends. Someone who changes jobs, starts a business or retires can lose it at exactly the age when buying new coverage costs the most. Individual coverage that the family owns stays in place regardless of employment.
Health, age and timing
Life insurance is priced on age and health at the time of application, and both move in only one direction. Underwriting looks at medical history, prescriptions, build, driving record and sometimes lab work, and the rating class assigned can change the price significantly. Buying earlier locks in a rate while health is good, and a family that waits for a better time often discovers that a new diagnosis has made coverage more expensive or harder to get. Our article on term life insurance quotes explains how underwriting affects price.
Mistakes that cost the most
The most expensive mistake is buying too little, usually because the coverage was chosen by monthly budget rather than by need. Close behind are naming beneficiaries carelessly, including naming minor children directly, letting a policy lapse during a tight year, and covering only the higher earner when the other spouse’s work at home would be expensive to replace. Our article on getting life insurance money to the right people covers beneficiaries and trusts.
Worth confirming on your policy
-
That the coverage amount is based on your family’s debts, income needs and goals
-
That the term length lasts as long as your largest obligations
-
That your term policy can be converted to permanent coverage without a new exam
-
That coverage you own stays in place if you change jobs or start a business
-
That both spouses are covered, including a spouse who works at home
-
That beneficiaries are current and minor children are not named directly
-
That premiums fit your budget well enough to keep the policy in force
Talk to us
Prestige Insurance Group offers life insurance as part of the planning we do for business owners and families with homes, investments and other assets to protect. We look at what the coverage has to accomplish first and then compare policies from several carriers. Send us your current coverage, including anything through work, and we will show you whether it matches what your family would actually need.
Call the office nearest you. Se habla español.
-
Miami: 305-969-8776
-
Orlando: 407-993-2331
-
Stuart: 772-247-3788
This article is general information, not legal, tax or financial advice. Policy features, underwriting and pricing vary by carrier and change over time; review estate, tax and business planning with your attorney or accountant. Prestige Insurance Group, Florida agency license L057894.
