Don't Make These Mistakes When Buying Term Life Insurance

Don't Make These Mistakes When Buying Term Life Insurance

by Byron Udell, December 2009
You wouldn't buy a house without first checking out comparable sales, the schools and neighborhood, and you wouldn't buy a car without first comparing it to others in its class or taking it for a test drive. As with any major purchase, it's important to know all the facts about life insurance so you can make wise decisions.

When shopping around for life insurance, you may want to consider this list of common mistakes most people make.

1. Buying the lowest price rather than the best value

Before selecting the lowest priced product, consider the financial strength of the company and the product's features, including the length of the guarantee period, convertibility rights, available riders, etc. Usually, for a little extra money, you can buy a policy with better features, more flexibility, and from a company with superior financial strength. Through our trusted partners at AccuQuote, it's easy to quickly compare Term Life Insurance rates from top-rated companies. Plus, you can save 70% on the cost of insurance.

2. Automatically buying term life

While term life insurance is an appropriate type of insurance for most people because it is extremely affordable at younger ages, other types of life insurance policies may be better choices in some situations. There are other affordable options like return-of-premium term life, universal life, or second-to-die policies. Explore them all to be sure you're making the right choice for your circumstances. Be sure to check with an experienced, licensed agent who can explain the pros and cons of the various types.

3. Not buying enough coverage

Most experts recommend buying a policy with a death benefit equal to 10 times your salary. However, everyone's needs are different. You should take into consideration your annual income before taxes, how much your dependents need, and their current ages in order to get a better estimate of your family's needs. To help determine how much coverage to buy, you may also consider using a free life insurance needs calculator, like the one at

4. Considering illustrations as fact

If buying anything other than term life insurance, keep in mind that columns of numbers in life insurance illustrations are generally only projections of what may or may not happen in the future. They are not guarantees (unless the column has the word "guaranteed" in it). The company's interest rates may decline and earnings may not be sufficient to cover the premium in the future, and/or mortality costs could rise in non-guaranteed contracts, sometimes necessitating significant additional out-of-pocket payments.

5. Not matching the length of the term to the need

If the purpose for the insurance is to provide coverage for a specific period of time in your life, such as until the children finish college, and your youngest child is 5, then your policy should allow you to maintain the coverage at a guaranteed rate for 20 years. In this case, you should consider a 20-year guaranteed-level premium product. If you buy a product with shorter term guarantee, such as a 10-year product, be sure to look the 11th year renewal rate. If it's ugly, as most are, remember you'll still need the insurance at that time, but may not have the good health to buy a different policy.

6. Viewing the purchase of life insurance as a one-time activity

Evaluating life insurance needs is an activity that must be conducted on an ongoing basis. A life insurance needs analysis should be conducted at least every 2-to-3 years because circumstances change (marriage, divorce, or birth) and the amount of insurance may no longer be adequate.

7. Buying a policy from the wrong company if you're a tobacco user

This mistake can cost you a lot of money. Whether you're a two-pack-a-day smoker, or you just engage in an occasional cigar or chew, most insurance companies' rates for tobacco users are more than double the rates for non-tobacco users. However, some companies treat tobacco use much more favorably. Rates from these companies can be significantly lower. The key is finding the right company.

8. Canceling a policy before a new one is in force

Sometimes it is appropriate to switch life insurance companies, especially since term life insurance rates have dropped dramatically over the past 10 years. But before dropping an existing life insurance policy for a new, low-cost life insurance policy, make sure the new one is in force.

Buying life insurance is arguably one of the most important financial decisions you can make, and one of the most confusing. Before making your decision, be sure to consult an expert to guide you through the process and provide the personal service. You deserve the support of an unbiased life insurance professional that can answer your questions, identify important issues, and make meaningful recommendations.

Byron Udell is the Founder and CEO of, one of the nations largest and most respected life insurance quoting and brokerage service. He is a Certified Financial Planner (CFP) practitioner, Chartered Life Underwriter (CLU), Chartered Financial Consultant (ChFC), and an Attorney at Law (JD), as well as a contributing author of a book entitled Wealth Enhancement and Preservation. Byron is a frequent speaker on the topic of life insurance.